Reduced capacity helped reinsurers at the June and July US property renewals to control market dynamics and achieve significant rate increases, according to the Willis Re 1st View report.
In Florida, new capacity proved difficult to acquire at June 1, which led to noteworthy premium increases and an average rate increase of 20-30%.
Capacity supply to Florida programs was largely reduced by a contracting retrocession market, liquidity preference by investors, and secondary trading of 144A catastrophe bonds.
Specifically, larger rate increases were seen on upper layers and layers impacted by loss creep, while lower layers observed pressure due to reduced reinsurer appetite, especially on associated reinstatement premium protection covers.
Willis Re also noted that reinsurers were keen to control market dynamics by applying tight deadlines on quotes and authorisations.
Terms and conditions were similarly pushed to remove cascading features, add Loss Adjustment Expense caps, and require co-participations in the program.
Across the US more broadly, capacity remained sufficient for traditional catastrophe structures, but reinsurer support for non-traditional structures such as cascading and top/drop layers constricted considerably.
Some new capacity was available from new market participants as well as additional capital inflows into existing reinsurers seeking to take advantage of a hardening market, Willis Re added.
Additionally, reinsurers hardened their position with regard to Communicable Disease (CD), with exclusions largely in place by June.
On top layers reinsurers were seeking higher minimum rates on line, especially when correlated with peak catastrophe exposures, although treaties with more regional specific exposure were more insulated from this impact.
Turning to the UK, Willis Re observed that catastrophe treaties achieved only low-to-mid single digit rate increases despite efforts from reinsurers to push pricing upwards during the quoting stage, possibly because there were few loss-affected catastrophe renewals at July 1.
Contagious disease exclusions are being added to all contracts, but analysts noted that the impact on the market of COVID-19 related BI losses is not yet fully understood, with FCA test case expected to provide greater clarity ahead of the January 2021 renewals.
In Australia, capacity was more abundantly available, but Willis Re reported that reinsurers were prepared to cut capacity or decline renewals if perceived pricing adequacy was not achievable, meaning rate increases were prevalent even on non-loss affected catastrophe layers.
In the Caribbean, capacity was available but limited for growth depending on the territory and its correlation with US exposures, although rate increases were tempered by the economic uncertainty that faces the region.
The story was much the same in Latin America, where there were no changes in available capacity and ILS or alternative capital has not been required. However, capacity on new layers has been harder to find than on renewal layers.
Here, Willis Re felt that leading reinsurers were more aggressive in seeking price increases, with Chile in particular seeing a surge in rates, partly due to the 2019 riots that affected property programs.
Elsewhere, market hardening was seen in China but with leading terms remaining competitive, while available capacity was static in South Africa, with catastrophe programs mostly unaffected by losses this year.
Finally, in the Middle East, Willis Re reported that reinsurer appetites are steady with clear signals of a firming market, but warned of considerable uncertainty on the economic outlook due to pandemic lockdowns and oil price collapse.