After navigating a difficult period reinsurers have pushed hard for improved terms and conditions (T&Cs) and ultimately moved higher up the tower, a move which analysts at S&P Global expect to be long lasting.
Speaking at the S&P Global event in Monte Carlo at the 2023 edition of the annual meeting of the reinsurance industry, Taoufik Gharib, Senior Director at S&P Global Ratings, said that in terms of the structural changes, S&P thinks those “will be long lasting.”
He explained that because reinsurers suffered from higher cat losses over the past four, five years, they have moved away from aggregates and frequency events and raised the attachment point as they moved further up cedents’ towers.
Gharib explained that while there’s always a price for risk, it’s “probably going to be hard for them to go back.”
“So as long as there’s a right price for that risk, reinsurers may, as long as they have a diversified portfolio, be willing to take that exposure. But again, we’ve seen that this time around reinsurers are more disciplined, and they’re pushing hard for terms and conditions,” continued Gharib.
He added that hopefully reinsurance companies have learned from past mistakes and that they hold the line going forward.
The structural changes have occurred as the cost of reinsurance has increased, which has led to primary insurers retaining more risk and absorbing a greater share of losses from floods, severe convective storms, and other secondary perils.
As the industry meets in Monte Carlo ahead of the key January 1st, 2024, reinsurance renewals, there’s an expectation that if it’s a normal H2 in terms of cat activity and losses, rate momentum will decelerate when compared with the 2023 renewals.
But, as S&P explained today, reinsurers are expected to remain disciplined when it comes to T&Cs and notably the lower layers in order to avoid a repeat of recent years.
