Analysts at JMP Securities have concluded that reinsurers are “firmly in control” of pricing and terms following the January 1 renewal period, with favourable conditions likely to remain in place beyond 2023.
JMP made this assessment of the market following meetings with insurers, reinsurers, and brokers around 1/1, when it became clear that supply and demand dislocations had driven a “structural reset” in the property market.
This mismatch was created by the combination of recent difficult results, sharp increases in inflation, poor equity and bond market performance, as well as re/insurers’ desires to reduce earnings volatility, analysts explained.
But while JMP’s discussions with companies involved price movements and attachment levels, these issues were largely overshadowed by bigger concerns surrounding the ability for cedants to complete programs and changes in terms and conditions within the policies, it said.
Indeed, in JMP’s view, January marked a transition back to a dynamic in which reinsurance is directed more at property cedants’ capital rather than earnings, which had been the case in recent years.
“Price and attachment levels are seeing sharp increases, but the more important change could be terms and conditions,” JMP analysts reported.
“As with any renewal season, pricing and attachment levels were part of our conversations, but they took a backseat to discussion surrounding availability of capacity and changes in terms and conditions, the latter of which typically prove stickier and arguably more important in limiting losses than price.”
In terms of pricing, JMP’s conversations pointed to anywhere from 40% to 70% rate increases for property cat, which was the class of business most dramatically impacted at Jan 1.
And regarding attachment levels, Europe seems to be coalescing around a 1-in-5 year event level, up from something closer to 1-in-2 or 1-in-3 in recent years, while the US market seems to be centred around a 1-in-10 year event level.
Additionally, while a significant push by reinsurers to move to named perils coverage appears to have mostly fallen short, JMP reports that they were broadly able to significantly reduce hours clauses and implement exclusions for items such as cyber, terror, and strike, riot and civil commotion.
