Reflecting on the April renewals, James Vickers, Chairman International, Reinsurance at Gallagher Re, says “the tide is lifting all boats” across the reinsurance market as improved conditions were maintained from the earlier January period and swept across even the smaller markets.
Gallagher Re’s 1st View report concludes that the 1/4 renewal proved “challenging” for reinsurance buyers, who were unable to avoid “variable but universal” price corrections imposed by reinsurers.
Analysts pointed 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.
“It’s a continuation of what we saw 1/1,” Vickers said in an interview with Reinsurance News. “There’s been no drop off in reinsurers’ resolve. What we have seen though that we didn’t necessarily see at 1/1 is that the hardening approach is now applying everywhere. The tide is lifting all boats even in smaller second and third tier markets.”
Vickers notes that, even a few months ago in January, there were still outlier markets in Asia and Latin America where price corrections were more muted, but that reinsurers now seem determined to “tighten up everywhere.”
Despite this, rate increases were perhaps more moderate at the April renewals than some had predicted, due to the focus on the Japanese market, which has already seen catastrophe rates move quite significantly in recent years.
Gallagher Re also points to a willingness among Japanese countries to comply with reinsurers’ requests to push up retentions, meaning market structures have already been moving in a direction that reinsurers want on nat cat, with pricing not too far off internal models.
“Through a combination of restructuring, some of the surplus treaties have been reorganized and increases in price on the risk excess programs, and particularly some restrictions around that cat exposures, maybe even exclusions of some peak zone, non-Japanese exposure, those treaties have been renewed,” Vickers explained.
“So that is a good effort by the Japanese companies and their brokers,” he added. “And for the reinsurers, they achieved many of improvements that they were looking for, but they also showed some flexibility from their side.”
But stepping away from the larger markets to some of the second tier territories, Vickers grants that “life has been a bit more tricky” for cedants and reinsurers alike, with some “quite radical” restructuring having been imposed.
“If you look also somewhere like India, the results have not been so positive, and there have been some fairly substantial increases and changes in pricing,” he told Reinsurance News. “But that’s a market that perhaps hadn’t felt much hardening over the last few years. So there’s an element of catching up all in one go.”
Throughout the 1st View report, analysts at Gallagher Re also warned that the overall reinsurance supply/demand dynamic remains “delicately poised,” as sufficient capital was available to meet client needs during the April renewals, but could prove more constrained in other markets going forward.
