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Reinsurers maintain discipline at challenging April renewal: Gallagher Re

3rd April 2023 - Author: Matt Sheehan

The April 1 reinsurance renewals saw a continuation of trends from the earlier January period this year, with reinsurers broadly maintaining discipline and driving up rates across all geographies, Gallagher Re reports.

Reinsurance renewalsThe broker’s 1st View report notes that the 1/4 renewal proved “challenging” for reinsurance buyers, who were unable to avoid the “variable but universal” price corrections imposed by reinsurers.

Analysts further point to significant structural changes that were required in some smaller markets that had escaped previous rate hikes, which may have “profoundly” impacted cedant’s financials in some cases.

“No particular geography was immune from the price corrections that reinsurers maintained throughout the 1 April set of renewals,” commented James Kent, Global CEO of Gallagher Re.

“We saw an enhanced pricing impact based on individual client’s performance and their reinsurer relationships, but even the most favoured clients paid more, with reinsurer discipline being evident across the market,” Kent explained.

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Among the other key findings from the 1st View report, Gallagher Re noted a better alignment of client and reinsurer expectations in Japan, which is a central focus for the April renewals, and which is characterized by long-term reinsurer relationships and has been aided by recent improvements in primary underwriting.

Similar to January 1, analysts continue to view the Casualty treaty market as “calm and logical,” though continued concern regarding US ‘nuclear’ award verdicts are increasingly coming to light on US casualty placements, including some treaties with incidental US exposures

Additionally, Gallagher Re reported that ILS issuance is picking up due to capital constraints in the traditional market, although at higher pricing than traditional indemnity pricing

In terms of the overall supply/demand dynamic, the broker concludes that it remains “finely balanced” but that buyers overall managed to secure sufficient capacity.

However, it stressed that capital does still remain constrained with limited signs of new capacity entering the market and existing reinsurers facing mark-to-market investment losses.

“Capacity was adequate to get cedants’ exposures covered, but April renewals are an inappropriate yardstick for the market’s overall supply-demand relationship as it is so heavily weighted towards Japanese exposures, which are significantly lower than the peak US exposures,” Kent continued.

“But we certainly didn’t see any meaningful new capacity, or any other indication that reinsurers are prepared to cede their hard-won pricing territory any time soon,” he added. “The combination of catastrophe losses and mark to market investment losses in 2022 means reinsurers will continue to coax the market towards rates which will help returns exceed the cost of capital.”

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