While all parties found the January 1st, 2023, reinsurance renewals very challenging, reinsurers were disciplined and fared well on the back of further market hardening, and it’s expected that reinsurance pricing momentum will continue for the upcoming renewals in 2023, according to S&P Global Ratings.
“It appears that the hard market is here, particularly in the short tail lines (property and property catastrophe lines),” say analysts at ratings agency S&P in a recent report.
Alongside significant rate increases, reinsurers benefitted from improved terms and conditions, while coverages and limits were also in favour for sellers of protection.
“It seems that the global reinsurers have run out of patience after trying to catch up with the increasing lost cost trends over the past several years, resulting in multidecade high rate increases in property catastrophe during the January renewals,” note analysts.
Demand for reinsurance increased at the renewals but was met with discipline from reinsurers as they focused on exposure management, and, in contrast to past years, took a more uniform approach to pricing actions.
Of course, rate increases varied by line, with significant rises seen in loss-hit U.S. property catastrophe business, but reinsurers were also “pleasantly surprised” by better than expected pricing in other regions, including Europe, Canada, Latin America, and Asia.
Looking forward, analysts expect reinsurance pricing momentum to persist for the upcoming renewals in 2023 but warn that capacity remains constrained on the property side. Part of the issue here, according to S&P, is the fact competitive pressure from alternative, or third-party reinsurance capital has somewhat abated amid a market dislocation.
But it’s not just about pricing in this renewal cycle, say analysts, highlighting reinsurers’ tightening of underwriting standards and their willingness to walk away from business.
This year also saw reinsurer appetite for aggregate covers fade, and analysts believe that overall, reinsurers’ revised risk appetites suggest a distinct shift toward taking on severity exposures rather than frequency.
“Reinsurers fared well during renewals with a strong focus on optimizing their portfolios, taking globally uniformed pricing actions, and holding firm for better rates in the wake of inflation and heavy catastrophe years. The reinsurance market was disciplined in holding its ground to achieve rate improvements given the lackluster performance and growing headwinds the sector is facing,” says S&P.
“The structural changes that took place during the January renewals will be long lasting because it will be hard for reinsurers to move back on their new attachment points,” added analysts.
