Swiss Re Insurance-Linked Fund Management

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The renewal wasn’t flat (or down) for everyone


The January 2019 renewal of reinsurance and retrocession contracts was not a flat affair for everyone, as our sources suggest that those who held the line on pricing were rewarded with better rates and have in some cases built portfolios that promise higher returns as a result.

spirit-levelIf you’re a largely following market, or a major global reinsurance firm that writes a slice of practically everything, or a beta style ILS fund player trying to write a spread of catastrophe risk, or an investor that only takes slices of major reinsurer sponsored sidecar vehicles, then yes the result of the renewal may have been largely flat for you.

But if you’re more selective and discerning, really worrying about the fiduciary duty you have to shareholders or investors, then in many cases you’ve likely come away from the renewal relatively happy with some of the rate increases you’ve achieved and wondering why the brokers are calling the market flat to a little down again.

As we mentioned in our coverage of the broker reports, here and here, we’ve spoken to ILS fund managers, ILS investors and some traditional markets that are relatively happy with their renewals.

Many of our sources feel that they have achieved better risk adjusted pricing on the whole across their portfolios, either ILS funds or traditional, which does suggest no-loss return expectations will be a little higher for the more selective underwriters of risk for the 2019 underwriting year (good news for investors generally).

We’ve heard of retro focused portfolios achieving 15% or even 20%+ rate increases, reflecting the dislocation experienced in that marketplace at year-end.

On the lower-volatility end of reinsurance, we’ve heard from sources claiming low to mid-single digit rate increases across their renewal books.

It’s clearly not the case for everyone, as evidenced by the broker commentary on a relatively flat market, but for those who are being more selective the outlook for the year ahead is seemingly much brighter.

As we explained earlier this week, one of the dynamics that has played out at this January reinsurance renewals is a shift by some of the leading ILS funds to place an increasing emphasis on their preferred or best performing cedants.

This shift appears to have paid dividends for some, resulting in a higher rate of return and potentially a better quality portfolio for the year ahead.

It’s important to note that we’re being told that in order to secure what better rates were available there was a need to be ready to walk away from certain programs and to be tough in negotiations with brokers.

Some sources say brokers have talked down these renewals, helping to depress rates (or at least promote them as such), which in terms of dynamics can influence the market.

This has also helped to slow down the renewal and is part of what made it late, our sources suggest, as there was a need to return to the negotiating table a number of times before deal terms and pricing were found that everyone could agree on.

Finally, we’re also told that renewals are still being signed, as parties on both sides of these late reinsurance and retrocession placements couldn’t come to agreement before January 1st.

This may continue into next week, but with many renewals only signed this week as well it shows that the early data released suggesting this renewal was relatively flat may have been both early and lacking a full picture.

But overall, it seems a lesson of this renewal will be that when looking at an entire market that is dominated by low-priced, relatively loss-free European and ex-Japan Asia Pacific renewals, it’s missing the nuances to suggest that the entire thing is flat.

Certainly the market wasn’t hard, but it wasn’t flat either it seems and your perception of just how flat (or hard) it may will depend on the precise area of the market you operate in and your strategy, how selective you’ve been in terms of counterparties to work with, how strong your relationships are with brokers and cedants and just how effective you are at the negotiating table.

Our ILS fund sources who are happy with their renewals say that the selective approach is bearing fruit and these markets are positive about their prospects for 2019 and beyond.

Read more of our reinsurance renewal coverage here.

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