January renewals went to the wire as reinsurers addressed rising losses, says Gallagher

04-01-2022

January renewals went to the wire as reinsurers addressed rising losses, says Gallagher

James Kent, CEO, Gallagher Re

Reinsurers’ desire for improved pricing has resulted in “tense” negotiations over January renewals, according to broker Gallagher Re. Its 1st View report finds that negotiations concluded very late with a wide range of outcomes despite healthy capitalisation and some insurers still looking for growth. 

“[P]arties settled largely on a client and portfolio-specific basis,” the broker finds. 

Hopes of more profitable 2021 results were hit by natural catastrophe losses which saw many reinsurers strongly advocating the need for price increases, especially on underperforming contracts. The pressure was not consistent across the market, however, with quota share placements on non-cat lines being keenly sought. 

“Quota share placements for US professional lines and casualty, along with some other global specialty lines, saw buyers achieving higher commissions on the back of continued rate increases for many primary lines of business, some reduced cession percentages, and heightened capacity supply,” the broker reports.

Property cat rating movements varied greatly by territory and client, it added, with significant increases seen on loss-hit programmes. Aggregate and loss frequency protections proved “very demanding”, it says, with reinsurers trying to move capacity away and ceding companies having to offer more attractive treaties to achieve completion.

Retrocession buyers experienced “a very difficult renewal”, it added.

“Aggregate retrocession capacity reduced substantially as ILS funds – who have provided the bulk of capacity – found themselves with increases in trapped capital and a diminishing investor base. Collateralised occurrence and sidecar retrocession capacity was consequently in short supply leading to some reinsurers pulling back catastrophe capacity for primary buyers.”

James Kent, Global CEO, Gallagher Re, said: “The end of a more challenging renewal season than most has, on balance, provided another rational outcome. Reinsurers have managed to achieve further improvements in pricing to build on the increases of the past 18 months, particularly on accounts ceding losses, but may be wondering if they have over-stressed some long-term client relationships. Many buyers have managed to secure sufficient capacity knowing the continued improvement in the underlying business has resulted in portfolios that are better balanced supported by largely consistent reinsurance structures to manage volatility and net lines.”

According to Gallagher Re, the market appears to have “moved on” from the Covid-19 claims. Instead, natural catastrophe losses and loss cost inflation were the focus of discussions across both short and long tail classes. 

“For long tail lines, the pricing of excess of loss covers was dominated by debates around underlying cost inflation and wider social inflation,” it found. “On short tail lines, inflationary concerns around constricted supply chains and labour supply leading to loss cost inflation were prominent.”

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