The market has faced a very late, complex and in many cases frustrating renewal, said Gallagher Re in its recent report ‘Market Turns’, providing highlights on the 1 January renewals.
The report noted that the two areas of most constraint were peak-zone US property catastrophe capacity and coverage for strikes, riots & and civil commotion and war. In most other lines and regions, buyers have largely been able to source capacity, albeit at a higher cost and in many cases changed structures with an increase in attachment points and the raising of the ‘floor’ on minimum rates on lines, a key focus for many reinsurers.
The renewal process has been gruelling for participants, many of whom have not faced such a rapid change in market conditions across a single renewal season, said the report.
The report highlighted that as renewals approached the end of the year, the market became more bifurcated:
- A divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute
- Clients with broad trading relationships facilitated negotiations with some reinsurers to be ‘packaged’, helping generated preferred pricing and/or increased capacity
- European property renewals generally being completed earlier than those for US clients
- A casualty treaty market viewed as calmer and more rational than other parts of the business, and with renewals completed at terms seen as tough but fair by most buyers.
“This final point perhaps best illustrates the challenge facing many clients. The primary liability market has seen improved trading conditions for insurers for the last four to five years and did not require a hardening reinsurance market to provoke its own ‘turn’,” said Gallagher Re global CEO James Kent.
He added that reinsurers saw the benefit of improved original pricing and consequently reinsurance capacity and pricing has remained relatively constant. In addition, the significant increase in interest rates over the last 12 months is providing additional support for reinsurers, a benefit they have not enjoyed for many years.
Conversely, for short-tail lines, insurance pricing in recent years has not seen the same degree of price increases as witnessed in the longer-tail lines. “For 2023, the property treaty market has hardened considerably, and now many clients face the challenge of increased reinsurance costs, increased retentions and more restricted coverage knowing that the original market pricing environment will take time to move upwards, particularly for personal lines business and the US admitted market. The current economic climate makes this predicament even more challenging. It is for this reason that buyers were inclined to favour reinsurance partners taking a longer-term view on adjusting pricing, terms and conditions,” added Mr Kent.
The report stated said that property risk renewals have seen less regional differentiation and a more uniform approach adopted by reinsurers seeking to improve their returns on a globally under performing class of business.
However, the improvement in pricing and conditions, most notably in property treaty business, has led to some new capacity coming into the market from a combination of modest capital raising by existing reinsurers, a reallocation of internal capital from some reinsurers, and notably some primary carriers with existing reinsurance operations.
“Times of significant market change are always challenging to navigate but we have seen a significant difference how individual reinsurers have reacted despite a widespread stated ambition to grow premium volumes in what is being viewed as the best treaty underwriting terms and conditions for a generation,” said Mr Kent. M