Property catastrophe pricing increased for the third year running at the April 1st, 2021 reinsurance renewals, while discussions about coverage were dominated by communicable disease and cyber, according to Guy Carpenter (GC), the reinsurance broking arm of Marsh.
Despite the positive momentum continuing at April 1st, GC notes that the average increase was actually the lowest of the past three years, which provided some consolation for buyers in what remains a sellers’ market.
Reinsurers were hit hard by the global COVID-19 pandemic, notably on the P&C side of the business, so it’s no surprise that communicable disease, alongside cyber, dominated conversations about coverage at the renewals.
“All clients introduced bespoke clauses on the contracts where they were necessary,” says GC.
According to the broker, negotiations started early in order to gain reinsurers’ acceptance, and discussions lasted for several weeks.
“The vast majority of reinsurers were able to agree to clients’ proposed clauses, but some only after much discussion and the provision of additional information. In a few cases, agreement was only reached at the final stage,” continues GC.
The company also highlights a slight increase in the supply of capacity at April 1st, but adds that this was not at the levels enjoyed by buyers ahead of the 2018 loss season. And, in certain areas of the business, such as engineering, capacity remained particularly tight.
Additionally, the reinsurance broker says that renewal timelines were similar to previous years.
“Before the start of the process, there was enough uncertainty over the likely outcome that quoting was a true stage of price discovery, as it had been in the two previous years. Quotes were thus actively sought from reinsurers,” notes GC.
During the most recent, Japan-focused reinsurance renewals, property catastrophe excess of loss programs saw prices increase for carriers in the range of 5% to 12% for loss-free accounts covering windstorm, though there were some outliers at either end of the spectrum.
“The average price for Japanese windstorm is now at a 25 year high. Buyers of protections including earthquake saw the pricing for that peril move up by low single digits percentages. Available capacity increased over 2020, resulting in a greater sign down percentage than in recent years,” reports GC.
At the same time, GC’s analysis finds that the volume of multi-year cover purchased by the Japanese market has fallen in recent years; with no new additional purchases of multi-year capacity in the core areas.
For non-Japanese exposures, GC states that pricing generally moved in line with expectations in the local geographies protected.
“As the market is generally hardening for all international catastrophe excess of loss treaties, this meant the price environment was challenging,” says GC.
Aggregate excess of loss covers, which have served buyers of protection well in recent times, also witnessed price increases at the renewals. According to GC, further losses in 2020 made the renewal even more complex and resulted in a need for careful planning and some restructuring to secure targets.
Some Japanese buyers also leverage the capital markets to obtain their reinsurance protection in the form of catastrophe bonds.
During Q1 2021, two Japanese insurer’s sponsored catastrophe bond transactions. This includes the $400 million multi-peril Sakura Re Ltd. (Series 2021-1) transaction from Sompo, and the $150 million Kizuna Re III Pte Ltd. (Series 2021-1) deal from Tokio Marine.
“Rates for catastrophe bonds were relatively competitive. Total limit supplied by this form of capacity remains small as a percentage of the total program limits purchased,” says GC.
The image below, provided by GC, details the typical risk adjusted price movement per unit of capacity at the Japanese renewals.