While reinsurance capacity is abundant and available, enough to dampen rate increases slightly at the January renewals, the continuing existence of uncertainty in the market means that for reinsurance, “Despite plenty of available capital, it is of course not available at any price,” according to Lockton Re’s Ross Howard.
Price matters in reinsurance right now, despite the disappointment with January renewal rates in some quarters, Lockton Re’s Global Executive Chairman, Ross Howard, believes.
While “a few new players plugging some gaps” in capacity served to ease pressure and resulted in more moderate January reinsurance renewal rates than perhaps expected, Howard cautions that there remains plenty of reasons for rate trajectory to remain positive overall, as we move through the rest of the 2021 reinsurance renewal seasons.
While reinsurance rates were not as positive as had been hoped for, they were still better than the prior year.
In retrocession though, Lockton Re believes rate increases were actually lower than at the January 2020 renewals, as lower demand meant that supply held up.
Importantly though, terms and conditions are being tightened up in retro markets. Howard explained that, “Peril wordings in retrocession were tightened and now require “named perils” as opposed to broader terms, generally avoiding the wording “included but not limited”.”
Sufficient capacity was the order of the day.
Howard noted that, “There was no lack of reinsurance capital in most lines at the 2021 reinsurance renewals, with total volumes at levels comparable to previous years at around $415 billion. New capacity of around $20 billion was added by existing players that raised new funds, as well as funds from new players, investments in insurance-linked securities (ILS), and sidecars.”
But even with capital levels still sufficient, Howard and Lockton Re believe there are enough uncertainties and unknowns still facing the market that suggest rates will remain positive.
“Because of uncertainty around the economy, reinsurers remain concerned about a low interest rate environment squeezing their investment income as well as premium income. Potential Covid-19-related losses that haven’t been reserved properly is another concern. With claims cost likely to continue going up, particularly in the US social inflation is another matter that will drive renewals throughout 2021,” Howard said.
Adding, “Natural and man-made catastrophes can rapidly change the reinsurance environment, but reinsurance capacity is likely to remain available. Instead of insurers trying to close gaps in their cover it is more likely that reinsurers will offer capacity in certain areas, taking further pressure off insurers’ balance sheets. Despite plenty of available capital, it is of course not available at any price.”