Reinsurance News

Uncertainty diminishing ahead of “complex” 1/1 renewals: GC

30th November 2020 - Author: Matt Sheehan

Guy Carpenter (GC), the reinsurance arm of global brokerage Marsh, has warned that the upcoming January 2021 renewals will be uniquely “complex” due to the manifold challenges in the market this year.

Reinsurance renewalsHowever, the broker added that re/insurers seem “ready to respond” to these complexities, and noted that some areas of uncertainty are diminishing in the run-up to the renewal period.

For instance, both primary and reinsurance rates are increasing, new capital is entering the market, and asset values continue to recover from the COVID-induced shock earlier this year.

As part of its Changing Nature of Risk report series, Guy Carpenter looked back at the mid-year renewal dynamics to get a sense of how the market could behave at 1/1.

“Mid-year reinsurance renewal negotiations were lengthy and complex as insurers and reinsurers cautiously worked to quantify and manage rising levels of uncertainty,” the report stated.


“COVID-19 compounded existing industry challenges with additional layers of hard-to quantify loss and economic volatility. The convergence of these factors resulted in market uncertainty reaching an apex through late spring and early summer.”

Although the midyear reinsurance market had sufficient overall capital, reinsurers adhered to strict guidelines to deploy their capacity, and as a result, catastrophe renewals experienced the lowest percentage of excess reinsurance authorizations since 2012.

This reduction clearly reflects increased caution from reinsurers, who continue to be wary about the slow development of COVID-19 losses this year.

Indeed, the fact that pandemic losses are still so uncertain at this point will be a very influential factor at January 1 for individual renewals and could potentially affect reinsurers’ overall willingness to deploy capital, Guy Carpenter warned.

In particular, long-tail lines have been an area of attention in pre-renewal discussions, as increased loss frequency and severity squeezing carriers’ margins as social inflation, among other considerations, is driving loss cost trends higher.

But commercial automobile and general liability are also showing significant adverse development, analysts noted, as well as medical professional liability and other liability.

“Based on these various factors, January 1 renewals and related negotiations are expected to be lengthier and more complex than in prior years,” Guy Carpenter’s report stated.

“The risk landscape is shifting in significant ways, driven by a number of factors, including demographic changes, the rise of digital technologies, new platform business models, intangible values, cybersecurity and climate change,” it continued.

“Insurers are facing new risks, and equally important, new opportunities. The reinsurance sector has a strong track record of responding to periods of change. Putting capital to work to create new coverages and meet evolving demands will be crucial in securing the sector’s long-term relevance.”

Against the backdrop of COVID and catastrophe losses, as well as the prolonged low-interest environment, the need for re/insurers to generate underlying profitability will be critical at next years’ renewals.

The push for underwriting returns has so far created a tightening of capacity in certain classes of business and an increase in rates across the board.

But the market continues to enjoy an abundance of capital, with dedicated reinsurance capital shrinking just 2% at half-year 2020, despite the impact of the pandemic.

Guy Carpenter also observed that around $35 billion of capital has already been raised by insurance and reinsurance market participants and there is ongoing activity to bring even more capital into the sector.

In terms of alternative capital, Guy Carpenter expects this market to evolve and adapt more broadly as capital seeks new ways to access risk.

With specific regard to the retrocessional market, the broker also noted that there is increasing activity and interest both from new capital and from existing rated balance sheets looking to deploy new capacity into the market.

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