Reinsurance News

Renewals mark return to reinsurers driving primary behaviour: Gallagher Re’s Vickers

4th January 2023 - Author: Matt Sheehan

The recent January 1 renewals period marked a return to a historical market dynamic in which reinsurers are the drivers of behaviour in the primary markets, James Vickers of Gallagher Re has asserted.

james-vickers-willis-reSpeaking to Reinsurance News alongside the release of Gallagher Re’s 1st View report, Vickers explained that reinsurers “are finally saying they’ve had enough” after years of unsatisfactory results.

The report described 1/1 as “complex and in many cases frustrating” for both buyers and sellers of capacity as tense negotiations ran “down to the wire” and reinsurers restricted their coverage on offer and pushed for tough terms and pricing.

But commenting on these trends, Vickers told Reinsurance News that, crucially, these hard market conditions have not been driven by a lack of capital, but rather by yet another period of disappointing returns for reinsurers, due in part to the impact of Hurricane Ian, as well as macroeconomic challenges and other issues.

“What’s clearly driven it has been unsatisfactory results,” he said. “Reinsurers have been looking at their property portfolios in particular, and saying this is unsustainable. It’s as simple as that. It’s a hardening market driven by lack of performance.”

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Vickers observed that the property market generally has not performed very well for a number of years and has been supported by a reinsurance industry that has been happy to give it lots of capacity.

“The underlying terms and conditions have simply not improved enough,” he asserted. “So this renewal is where the reinsurers are finally saying they’ve had enough. And we’re back to the historical market dynamics where reinsurers drove behaviour in the primary markets. We’re back to that type of dynamic. And that’s not easy for some primary companies because some of them can adapt and change their underwriting quite quickly, but some of them are not in a position to do that. And if they want to change it takes them a couple of years in some cases.”

Analysis by Gallagher Re shows that some catastrophe loss-hit treaties in the US witnessed rate increases of more than 100% at the January renewals, as Hurricane Ian, other catastrophe and risk losses, inflation, and rising interest rates drove disruption in the market.

However, the broker also warned that these hard-fought positive outcomes for reinsurers may have come at the expense of damaged client relationships, and may also have “reduced confidence from some buyers in the reinsurance product.”

It remains to be seen how long-lasting the damage will be, but Vickers expressed a more positive outlook for the April and mid-year renewal periods in 2023.

“This is a moment of market reset in some classes of business,” he told Reinsurance News. “So in that sense, later renewal seasons should be quite a bit easier, because everybody knows what’s coming. And expectations on all sides will be more easily managed. Whether there’s this continuation of substantial increases I think you can’t call that. That will be very much down to individual clients and where they’re at in terms of their specific performance and current reinsurance pricing levels … So I don’t think we can generalize.”

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