Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

January reinsurance renewals set to be extremely competitive


Reinsurance firms and ILS funds looking to make the most of any increase in rates at the forthcoming January renewal season are likely to make this one of the most competitive in years, which could ultimately mean that price rises are even more short-lived than currently expected.

January 1st reinsurance renewal calendar imageFollowing the roughly $100 billion of industry-wide catastrophe losses expected from events so far this year, the expectation is that reinsurance and retrocession rates are set to rise.

Some have called for retrocession rates to rise by as much as 50% at the upcoming January renewals, while reinsurance rates have been slated to rise by 10% to 20% on loss hit programs, with broader 5% rate rises forecast.

Everyone is now calling for these rises, both on the traditional and alternative sides of the reinsurance market. It is clear that rates had declined to levels where reinsurers were finding it hard to justify underwriting property catastrophe risks on a stand-alone basis, although on a diversified-basis of course they keep soaking them up.

The ILS market has been largely happy with the rates available in some peak catastrophe risk zones, but not so happy in others where the major reinsurers have been wielding the power of global diversification.

But with rate rises hoped for across the sector we’re almost guaranteed to see extremely competitive market dynamics at 1/1 2018.

All of the major global reinsurance firms have reported an expectation that rates will rise. As a result they are also planning to increase their U.S. property catastrophe risk underwriting as well, having pulled back in recent years.

French reinsurer SCOR is the latest to say it expects reinsurance rate rises, saying today that it expects to achieve higher pricing on U.S. loss affected business and also more broadly in other regions and lines of business outside of property catastrophe risks.

The company said that it could take advantage of higher rates in order to speed up the growth of its U.S. business, part of the reinsurers long-term strategy.

While the United States has been a target market for SCOR, like the other big four global reinsurance firms the company has been tentative about deploying more capacity into property catastrophe risks there.

But now all of these large reinsurers are looking at whether there are opportunities for them to rekindle old relationships in order to take a larger share of that market as well, which almost guarantees competition is set to ramp up once again.

It’s not just the big four though. The Bermudian catastrophe specialist reinsurers are likely to go all out to secure larger portfolios of risk at upcoming renewals, if the expectations of rate rises prove to be accurate.

Naturally, the ILS market is going to do what it can to ensure it does not lose market share as well. In fact some ILS funds and collateralized reinsurance players could have more capacity at their disposal by January 1st, meaning the competition for signings from the ILS market is likely to remain very strong.

With capital raises underway and in some cases completed at impressive sizes, as seen with Markel CATCo yesterday, it looks unlikely that the ILS market will be lacking in capacity, overall as some funds may find it harder than others to raise new capital, come renewal negotiations.

At the same time the catastrophe bond investment market is also likely to be a competitive source of reinsurance capacity, with these capital providers potentially willing to settle for lower rate rises than others making cat bonds a more competitive alternative once again.

This push to benefit from rising reinsurance rates could end up scuppering the potential for those rate rises to be anywhere near where the forecasters have pegged them.

As more risk capital looks to the markets where prices rise, the end result is likely to be a very short-lived price increase.

It could be that we see the real opportunity for higher rates at the January 2018 renewals, but by April and June the price rises are far more muted, if the market remains free of major losses, with pricing perhaps only a few percent higher than seen at the 2017 renewals.

Should major reinsurers look to more aggressively gain market share in January, the effect could be that the price rises we see are much lower than they would have liked.

The tendency to rush in for higher rates is likely to dampen the very price increases they seek, and with efficient capital perhaps settling for a lower price increase than traditional (in some cases), the market dynamics at this January renewal are set to be fascinating to watch.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.