The reinsurance sector now finds itself at a “crossroad,” according to analysts at Guy Carpenter, following one of the most challenging renewal periods ever experienced at January 1.
In a report on the crucial renewal period, Guy Carpenter – a global risk and reinsurance specialist and a business of Marsh McLennan – notes that the renewal season ran extremely late this year as both reinsurers and cedents worked to establish a new market equilibrium.
Ultimately, placements were largely completed at client issued structures and pricing, it reported, without many of the requested modifications in coverage.
But while the market is still clearly unsettled, the broker also acknowledges that progress has been made finding paths to completion and that many non-concurrent coverage issues have been resolved.
This was after more extreme coverage modifications that were initially sought by some reinsurers for Jan 1 threatened to “erode the core value of the reinsurance product,” in the view of Guy Carpenter.
“Looking past the renewal of January 2023, it’s important to remember that we have been at crossroads before,” said Dean Klisura, President and CEO, Guy Carpenter. “In prior reinsurance cycles, significant catastrophe loss events such as Hurricane Andrew, the attacks of September 11, 2001, and Hurricanes Katrina, Rita and Wilma were the catalysts for market corrections that preceded new capital entering the sector.”
“It is imperative that the industry stay focused on providing workable client solutions, thorough coverage and balanced pricing for the long-term sustainability of cedents and markets,” he continued. “Our top priority is ensuring that clients are getting the coverage and clarity they require in order to conduct their business.”
Property was unsurprisingly seen as the most challenged sector at 1/1 with adjustments focused on pricing, attachment and coverage, although these were largely limited to terror and strike, riot and civil commotion (SRCC) clauses, Guy Carpenter reports, and many of the most extreme changes were not taken up.
The imbalance of supply and demand in property catastrophe also contributed to a stressed market and, in some cases, led to pricing and structural changes “unsupported by technical considerations” and with unsustainable outcomes.
Furthermore, while some reinsurers reduced or withdrew their property capacity in 2022, Guy Carpenter reports that others are now viewing this market inflection point as an opportunity to increase their participation, meaning future outcomes should stabilize as capacity deficiencies moderate.
Beyond property, requirements varied, with treaty results in lines such as casualty being highly dependent on prior-year results, underlying rate changes, and overall portfolio performance, with pressure on pricing seen across most lines.
“As reinsurers adjusted their approach, Guy Carpenter worked closely with our clients to prepare for more detailed, technical discussions and to strategize on multiple solutions in a shifting environment, finding pathways to achieve viable renewal outcomes,” said David Priebe, Chairman at Guy Carpenter.
“We all recognize a healthy, dynamic and responsive reinsurance market is crucial to the global economy and our collective success,” he concluded.
