January renewals significantly behind schedule: Arch management

The January 2022 reinsurance renewals are said to be significantly behind schedule so far, as firms hold back on committing capacity in the challenged marketplace, according to Arch Capital’s management team.

This aligns with what we’ve been hearing from market sources, that there are a number of factors which have delayed the renewals this year, with negotiations still seen as at their very early stages.

In fact, some retrocession programs that might typically have been on their way to completing placements by now, have had to restructure and be re-marketed, resulting in delays.

The reasons are varied, but the impacts of hurricane Ida have thrown a considerable spanner in the works of some renewal processes, not least as the spectre of loss creep is hanging over that event and there is some uncertainty over where the industry loss settles still.

Alongside that, the trapping of collateral among insurance-linked securities (ILS) markets that write lower layer collateralised reinsurance or retrocession also remains a bit of an unknown, while some traditional providers of retro are also facing significant losses in 2021.

All of that means retro capacity levels are a little uncertain, which has driven some challenging discussions and emboldened some to hold back, while there are also others talking about the opportunity to bring some new capital into that marketplace.

Not to mention the divergence between occurrence and aggregate reinsurance market conditions and pricing, with lower-layer aggregate covers becoming increasingly challenging to place and capacity often lacking.

Plus, terms and conditions are once again a key source of discussion in the market, with some pushing for more stringent definitions, higher deductibles, and less punitive collateral rules as well.

Other issues and challenges range from the cyber market, which with reinsurance capacity at a rising premium sees some underwriters unsure what they are able to accept. While uncertainty over the trajectory or pace of rate increases in some other areas of specialty lines has also caused some to hold back.

So there is a lot going on, all of which plays into how fluid the renewal negotiations and cycle is moving in 2021 as we approach 2022.

The management of Bermuda headquartered insurance and reinsurance firm Arch Capital spoke at a Morgan Stanley analyst conference earlier this week and CFO Francois Morin discussed the firms expectations for the January 2022 renewals and what pricing trends to expect.

The analysts said that Arch Capital’s management struck a more optimistic tone on the renewal outcome than some speaking at the conference, but had stressed that they are set to be late.

In fact, bound business is running far behind prior years it seems, with only around 1% of renewal business placed as of the date of the conference holding.

The focus of the renewals has shifted to retrocession and uncertainties around property catastrophe risks, Arch’s management had explained.

As a result of which, the January renewals are said to be “significantly behind schedule”, with few rushing to commit this year, preferring to wait and see how much capacity to deploy, likely for many of the reasons detailed above.

Rival AXIS also struck a positive tone on the renewal outcome at the conference, the analysts explained, but reiterated its desire not to increase its catastrophe exposure.

It appears renewals may run to the end of the year and likely beyond in some cases, making for a busy Christmas run-up and year-end for many underwriting teams across reinsurance and ILS fund markets.

Retrocession availability remains an issue of concern, it seems.

We wrote yesterday about the focus on the sufficiency of retrocession and reinsurance in the wake of recent catastrophe loss trends.

While another analyst team had recently warned that, with reinsurance market appetite for certain property catastrophe risks uncertain at this renewals, some re/insurers may find themselves retaining more secondary peril exposure.

While capacity appears limited by losses and trapping, there are also certain areas of the risk tower where new capital could come in to replenish availability, especially at higher and occurrence layers.

While the catastrophe bond market, of course, remains open for business and continues to provide aggregate industry loss based capacity.

Read all of our reinsurance renewals news coverage here.