The momentum seen in the reinsurance market at renewals so far in 2023 is expected to continue at the mid-point of the year, with demand expected to be high and a number of key issues likely to be discussed, from pricing and terms, to catastrophe frequency and the impacts of secondary perils, according to Swiss Re’s Gianfranco Lot.
Gianfranco Lot, the Chief Underwriting Officer for P&C Reinsurance at global player Swiss Re, noted that pricing momentum continued at the recent April renewal season, something he anticipates will continue as the market remains focused on rate adequacy.
“Pricing momentum as seen in 1.1 renewals continued, as did higher retentions and tighter terms and conditions, with changes in relation to structures and wordings. This was particularly evident around areas such as infectious diseases, non-damage business interruption and loss occurrence definitions,” Lot explained on the April 1 renewal.
Adding that, “Overall, client and reinsurer expectations were better aligned than at 1 January 2023.”
On the differences seen, between April’s renewal market and the 1/1 renewal at January 1st, Lot said, “While 1.1 was quite uncertain, 1.4 was much more methodical. Market and economic conditions and dynamics didn’t change dramatically from 1.1, so the process was much more measured.
“Expectations were better managed for 1.4 than the 1.1 renewals since the 1.1 renewal enabled clients to anticipate rate increases, so they were therefore able to prepare and adjust their budgets accordingly, and the use of retrocessions enabled reinsurers to calculate capital supply more accurately while remaining conscious of required returns.”
The frequency and severity of catastrophe losses in recent years remains a key talking point in renewal negotiations, with Lot highlighting that this played a role again in April.
“Understandably, there was a need for discussion with clients and brokers, especially in Japan, where reinsurance rates had already been adjusted in the last years. However, the global increase in the risk frequency and severity trend of natural catastrophe events had to be considered,” he explained.
Natural catastrophe risk exposures are “always a big area of discussion” Lot said.
Lot commented on one other point of note on the April renewal season, saying, “Good progress was achieved in relation to data transparency, which is an issue across the entire re/insurance value chain globally. Many clients were able to provide more granular data points than before that enabled our own underwriters to better understand the risks and price them accordingly.”
Looking ahead to the key mid-year renewal season, where Florida, US and some international risks, such as Australia, renew, Lot believes the reinsurance market momentum seen so far in 2023 will continue.
“With 1.7 focused on the US and Australia, there’s likely to be more demand. In this sense, I expect a continuation of the current market momentum,” he explained.
Then, beyond the mid-year renewals the reinsurance market always looks to the conference season from September onwards, where discussions begin that can set the tone for the key end of year renewal negotiations before January 1 2024.
Lot said that, “Walking into the conference season, I am anticipating discussions around the increasing frequency of natural catastrophe events and secondary perils. So far this year, we’ve witnessed the earthquakes in Turkey and Syria, tropical cyclone Gabriel, several tornadoes, and floods in New Zealand too. So that seems to be elevated, at least from a first quarter perspective. It’s hard to say how that will change but by the half year point, we will have more data points.”
Adding that, “Looking ahead, we expect conversations to be more about the continuation of momentum on pricing, conditions and reinsurance structures as well as specific topics like cyber, economic inflation and weather-related events.”
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