Reinsurance buyers were unable to avoid variable but universal price corrections driving rates up at the 1 April renewals, according to the latest 1st View renewals report from Gallagher Re.
The report, released last month, noted that the 1 April renewal was challenging, with buyers facing similar discipline from the reinsurers to that seen at 1 January. In some cases, particularly within smaller markets that had escaped previous rate hikes, reinsurers imposed significant structural changes.
These dramatic adjustments may have impacted ceding insurers’ financials profoundly. Gallagher Re global CEO James Kent said, “No particular geography was immune from the price corrections that reinsurers maintained throughout the 1 April set of renewals. We saw an enhanced pricing impact based on individual client’s performance and their reinsurer relationships, but even the most favoured clients paid more, with reinsurer discipline being evident across the market.
“Capacity was adequate to get cedents’ exposures covered, but April renewals are an inappropriate yardstick for the market’s overall supply-demand relationship as it is so heavily weighted towards Japanese exposures, which are significantly lower than the peak US exposures. But we certainly didn’t see any meaningful new capacity, or any other indication that reinsurers are prepared to cede their hard-won pricing territory any time soon. The combination of catastrophe losses and mark to market investment losses in 2022 means reinsurers will continue to coax the market towards rates which will help returns exceed the cost of capital.”
Overall, the market has faced similar discipline to that seen at 1 January renewals, although with a more intense focus on pricing and contract improvements across all territories and to all lines of business.
The report also found that capital remains constrained with limited signs of new capacity entering the market and existing reinsurers facing mark-to-market investment losses.
In Japan, long-term reinsurer relationships, aided by improvements in primary underwriting, led to a better alignment of client and reinsurer expectation.
The report also said that the supply/demand dynamic was finely balanced but overall, buyers managed to secure sufficient capacity. Furthermore, similar to 1 January, the casualty treaty market remained calm and logical, though continued concern regarding US ‘nuclear’ award verdicts are increasingly coming to light on US casualty placements, including some treaties with incidental US exposures.
As for ILS, issuance is picking up due to capital constraints in the traditional market, although at higher pricing than traditional indemnity pricing. M