At the just completed April 1st 2023 reinsurance renewals even the most favoured clients have paid more for their coverage, while no geographic region was immune to the market price correction, Gallagher Re has explained.
The reinsurance broker has published its regular 1st View renewals report for April 1, concluding that the discipline of reinsurers was undiminished, resulting in challenging market conditions for cedents.
Citing “variable but universal price corrections driving rates up at the 1 April renewals,” Gallagher Re says that no reinsurance buyer avoided this market pricing trend.
Buyers faced similar challenges to those seen at the January renewals, with higher prices, changes to terms and structures, and while capacity proved adequate, the renewal market conditions will have ramifications for ceding companies.
Gallagher Re said that discipline was evident among the reinsurance community at the renewals and buyers were affected across all regions.
Even smaller markets where rate increases had not really been evident of late, “significant structural changes were imposed by reinsurers.”
“These dramatic adjustments may have impacted ceding insurers’ financials profoundly,” Gallagher Re said.
James Kent, Global CEO of Gallagher Re, explained how the April renewals played out, “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 cedants’ 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.”
Interestingly, Gallagher Re believes that, compared to January, the April renewals saw a more intense focus on pricing and terms across all geographies and lines of business.
Capital is still constrained, they said, with new capacity limited, but even though the balance between supply and demand remains finely balanced, it proved adequate to cover exposures for buyers.
Japan perhaps saw the best of the renewals with long-term reinsurer relationships, as well as improvements in primary underwriting, driving a better alignment of client and reinsurer expectation, the broker said.
Finally, Gallagher Re noted the pick-up in insurance-linked securities (ILS) issuance, which we document through our extensive Deal Directory, saying that capital constraints in the traditional market remain a driver for a buoyant catastrophe bond market, although this is “at higher pricing than traditional indemnity pricing.”
Read all of our reinsurance renewals coverage here.
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