Swiss Re Insurance-Linked Fund Management

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Traditional reinsurers targeting retro opportunities at renewals


A number of the world’s leading reinsurance firms are aiming to underwrite more retrocession at the upcoming January 2019 renewal season, as they view the retro market as an opportunity, given the impact trapped collateral may have on the availability of retro capacity at 1/1.

Retrocession layers, particularly riskier ones, as well as aggregate retro arrangements have been particularly badly affected by the proliferation of catastrophe losses over the last 18 months.

For collateralized retro players and ILS funds that underwrite retrocession this has led to significant amounts of their collateral and capital being trapped, making it impossible to use for the upcoming January renewal season. As we said recently, there are some ILS players that are struggling to renew core portfolios for 2019 due to the effects of capital loss.

As a result, our sources say they expect a capacity crunch in the retro reinsurance space, unless of course somebody else steps in with capacity to replace that which has become unavailable.

Here some of the traditional reinsurance markets are showing an appetite to come back into the retro market in a bigger way. Many had backed off in recent years and underwritten less retrocession as they felt rates had declined more than their own risk appetites and cost-of-capital would support.

But with signs that the retro market will see further price increases at this January 2019 renewal season, which stands to reason given the extent of the losses suffered, some of the traditional markets are set to come back to retro, or increase their capacity allocation to the market significantly, we understand.

Names that have been mentioned, as showing an increased appetite for retrocession opportunities at the 1/1 renewals, include Bermudian reinsurers RenaissanceRe and AIG owned Validus, among others.

We’re also told that some of the big four reinsurers, so Swiss Re, Munich Re, SCOR (which cleverly placed its own retro program a month ago when conditions were clearly better) and Hannover Re, may look to underwrite a little more opportunistic retrocession at 1/1, if rates are significantly more attractive.

They face some competition for any retro opportunities that are going unfilled though, as there are a number of collateralized markets also looking to increase their retro allocations if rates are conducive.

In addition, we’re told at least one investor that has a history of taking advantage of high-priced market dislocation opportunities may look to come back in at 1/1, suggesting that traditional reinsurers may not have it all their own way.

Of course, all of this will be moot if the existing collateralized retrocession specialist markets can successfully raise more capital for the 1/1 renewals and find solutions for their trapped collateral, or if any new players can raise the necessary capital.

We understand discussions are ongoing over trapped collateral solutions in a number of corners of the market, as financiers see an opportunity to create new solutions to help markets trade forwards after the heavy and now successive years of catastrophe losses.

All of which just serves to make this coming January renewal even more fascinating, as opportunities emerge and both incumbents and less seen players seek to take advantage of them.

Read more of our coverage related to the upcoming reinsurance renewals.

Also read:

Reinsurance renewals may hold “surprise to the upside” – Twelve Capital.

2018 is the real test for ILS investors: Lohmann, Secquaero.

Cat bond liquidity benefits evident, as ILS funds sell to free up capital.

Some ILS funds struggle to even renew core portfolios, let alone grow.

Property catastrophe rates to rise at 1/1 & beyond: Everest Re management.

One sidecar pulled on lack of investor appetite, others questioned on terms.

Capital availability & losses to drive reinsurance rates at 1/1 renewals.

Retro losses could drive price increases in 2019: Goldman Sachs.

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