Uncertainty dissipating, differentiation again key at January renewals: Guy Carpenter

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Some of the drivers of uncertainty are dissipating as the January 1st 2022 reinsurance renewals approach, but still, differentiation is expected to be a key factor when the next major contract signings season begins, according to Guy Carpenter executives.

guy-carpenter-logoSpeaking during a briefing held by the reinsurance broker yesterday, Global Head of Distribution, Lara Mowery explained that she expects a continued focus on COVID-19 claims at the January reinsurance renewals, but gave no view on whether these are expected to begin to be realised as losses.

Overall, the event’s panellists explained that the reinsurance market is faced with a convergence of tangible and intangible challenges which is “creating one of the most dynamic and potentially volatile environments in recent market history.”

However, with capital high, reinsurance industry strength continues to support cedant needs and both insurers and reinsurers are demonstrating their their resilience through their ability to adapt and respond to change and challenges.

Mowery explained that pricing trends continue to evolve, and that while the first half of 2021 saw reinsurance pricing continue to firm, “mid-year placements indicated moderating increases in average pricing due to the strong capital position of the sector and general economic rebound.”

Looking ahead to the January 2022 renewals, Mowery said, “Some drivers of uncertainty are dissipating. Primary rates are stabilizing, and ample traditional, as well as alternative capital, is bolstering the sector. Reinsurers’ risk appetites and product offerings continue to evolve in response to emerging market realities, and differentiation remains valuable.”

Differentiation is a key theme of most of the reinsurance market briefings and events held around the time the industry would usually have been in Monte Carlo this year.

It’s seen as a key driver of any expected rate increases and additional firming, with recent historical performance of programs and also how many surprises cedants have delivered to their reinsurance partners, seen as key in how the renewal outcome may be for individual companies.

The focus is widening though, and Mowery said that, “The market will continue to monitor how COVID-19 claims are resolved and how the losses of 2021 develop while also turning attention to evolving risks including cyber and climate change.”

Sebastian Cook, Managing Director and Head of London Europe at Guy Carpenter also commented on rates, saying, “The U.S. Property Catastrophe Rate-on-Line (ROL) Index increased by six percent for renewals from January through July, approximately half of the increase experienced over the same period in 2020.

“The increase in Asia, meanwhile, was approximately five percent.

“Overall ROL levels were impacted by several factors, including some upward shifts in retentions, particularly on loss-impacted programs, additional limits purchased on the top end of programs and increased pricing.

“More broadly, the concerns about exposure from secondary perils and climate change were offset by abundant capacity, the effect of compounding rate increases and strong appetite for growth.”

So, with capacity seemingly beginning to offset uncertainty, questions remain over the direction reinsurance rates will travel at the January renewal season in 2022.

Christopher Ross, Managing Director, Treaty Broking, also participated in the briefing yesterday and commented on casualty renewal expectations.

“Engagement between all parties has been remarkable during this unprecedented period. Heading into year-end renewals, we expect this positive momentum to continue and lead to an orderly renewal period with ample capacity to support cedents’ reinsurance strategies,” he explained.

On the recent European flooding the Guy Carpenter team said that the industry seems to be moving towards a consensus that this will be a roughly EUR 10 billion industry loss event, the largest in Europe for over two decades.

As a result, this could factor into renewal discussions in the region, but they still expect differentiation to be the main driver of rates.

The reasons for this are Europe’s still strong role as a diversifying peril for global reinsurers, as well as the very strong performance of portfolios in Europe in recent years, on top of the fact capital is building in the industry.

As a result, they concluded that reinsurers would likely take a measured approach, on a cedant-by-cedant basis at the January renewal season, which does make it sound like broad firming could dissipate further when it comes to January 1st.

As reinsurers absorb their losses that have already occurred this year and with some months until the renewals, the negotiations look set to be interesting again.

Capital is definitely going to be a key driver, but it also seems likely we could see more early renewals again, especially in the insurance-linked securities (ILS) market, as cedants look to get ahead of the rush and finalise their arrangements well in advance of 1/1.

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