Reinsurance companies on year-end 2022 renewals are pushing rates, retentions, and terms and conditions onto buyers of protection, with sellers generally achieving 35% of greater risk-adjusted rate rises, according to analysis by Stonybrook Capital.
The January reinsurance renewals season, which is now underway and expected to be prolonged, has been described by reinsurance broker Guy Carpenter as one of the most challenging.
Significant rate increases are expected in many lines of business, but the cumulative impacts of losses from natural catastrophe events, economic and social inflation, and geopolitical uncertainty, has brought the property market into focus.
According to Stonybrook, these stresses have led to the U.S. property and casualty sector to report its highest quarterly combined ratio of 106.6% in five years, with the industry’s total surplus falling by 11% during this period.
“The P&C industry experienced a $24.3B net underwriting loss in the first nine months of 2022, partially driven by the estimated $115B of global insured natural catastrophe losses in the period,” say analysts. “Many in the industry report this as the hardest market since at least Hurricane Andrew and the Northridge earthquake of 1992 and 1994.”
Stonybrook goes on to say that although property catastrophe treaties will experience the steepest rate rises, casualty insurers have also struggled with adverse development, slowing rate rises, and elevated loss costs on the back of inflation and supply chain issues.
In light of current market dynamics and the loss experience of the last four to five years, exacerbated by the impacts of Hurricane Ian earlier this year, it’s not surprising that Stonybrook feels as though “catastrophe reinsurers are in the driver seat.”
Analysts note that sellers of protection at year-end renewals are pushing retentions, rates, and terms and conditions onto their cedants, with reinsurers “generally getting 35% or greater risk adjusted rate increases, and anecdotally up to 150%.”
“Many reinsurers will not support any layer below the 1:10 attachment point, resulting in cedants taking meaningful retention increases. Reinsurers are also often restricting cover to “named perils.””, says Stonybrook.
What’s more, analysts warn that, the “harsh renewals” for primary players is driven by an even more restricted market for retrocession capacity, as reinsurers are hesitant to authorise lines not knowing the capacity available to cede their own risks.
“Other factors include years of consistent losses in the US, surplus declines, a weaker euro, a recent trend by reinsurers to de-risk their assumed portfolios, and a surprising absence of new entrants,” says Stonybrook.
Looking ahead, analysts expect many of the defining re/insurance industry trends witnessed in 2022 to persist into 2023, including things like the growth of the programs market, shifts to surplus lines, and the shortfall of reinsurance capacity.
“We expect reinsurers to remain in the driver seat and for that hard market continuing well into 2023. 2022 loss experience has reduced industry surplus by 11% in the first 9 months of 2022 increasing the needs for consolidations, new affiliations, demutualizations, reciprocal conversions, and surplus notes,” notes the firm.
