The resilience of the global reinsurance market “shone through” at the January 2021 renewals, which broker Willis Re says were less onerous than feared for ceding companies.
Overall, global reinsurance capital recovered strongly in 2020 and a raft of capital raises and start-ups helped it to end the year up some 3%, according to the reinsurance broker’s measure.
That, alongside a desire to put uncertainty over potential COVID-19 pandemic losses on the back-burner until the renewal was over, meant that while not the most orderly January renewal season the reinsurance industry has seen, it wasn’t as challenging as many had expected.
However, our sources told us that the disappointment we previously wrote about, as price increases have not been as steep as hoped for, remained true right up to the renewals and in some areas of the market, particularly retrocession, we hear of disgruntled markets unhappy with the way new capital from start-ups has been channelled to certain clients, to the detriment of established markets.
Willis Re said this morning that the reinsurance renewals at January 1st 2021 were governed by reason and logic, which may be something to do with the challenging year everyone faced in 2020.
Despite the still prevalent COVID-19 coronavirus pandemic and the shift to remote working this has caused, the reinsurance market successfully arrested the persistent downward trend in rates that had been seen over recent years, the broker said.
But, despite the firming of the market (which can’t really be called hard yet), ceding companies benefited as terms and conditions were less onerous than had been feared, which Willis Re believes shows off “the efficient working of the global reinsurance market.”
James Kent, Global CEO of Willis Re, explained, “2020 brought vast economic and social disruption to many parts of society. It is important to recognise our good fortune as being part of an industry that continues to grow in relevance, and which has the potential to adapt to meet such challenges.
“This was reflected during the renewals process, as the resilience of the reinsurance sector shone through, not just to losses, but to working challenges. Once again, the dynamics of the sector have proved robust on all fronts.”
Newly raised capital has seemingly been a moderator for the reinsurance market at this renewals, alongside the fact many of the most awkward discussions over COVID losses and trapped collateral have been postponed until after the renewals were closed.
The renewals were demanding for those reinsurance and retro buyers that have short-tail portfolios with poor loss records, Willis Re explained, with reinsurers and ILS funds reluctant to provide capital to support aggregate and working layer covers.
However, appetite for higher, loss-free layers of catastrophe reinsurance towers was much higher and these were completed more readily and with fewer demands on cedents.
In the property retrocession market, Willis Re notes that capacity remained limited. But this wasn’t as much of an issue as many expected and retro market conditions actually proved more stable at January 1st.
Some insurance-linked securities (ILS) funds increased their assets under management, Willis Re noted, while traditional reinsurers offered new or additional retro limit as well.
At the same time, some retro buyers were seeking out less cover at the January renewals, Willis Re explained, which could be a reaction to higher pricing, as well as to the lack of capital protection offerings in the market right now, since pillared products are less readily available.
Aggregate retrocession was generally less available than occurrence, Willis Re said, which has been a driver for some of the catastrophe bond issuance seen in recent weeks.
COVID-19 related losses and issues did not derail the renewals, but some of this has now been postponed, as with more COVID losses set to emerge, markets and cedents elected to complete the renewals and come back to this sticky issue after the fact.
Which should make for an interesting few weeks, especially on the collateralized reinsurance side as we move towards the crunch point at which trapping for COVID related loss exposure will become a real issue for some positions and perhaps fund strategies.