Capacity was ample for many lines but more constrained for retrocession and some components of property, including loss-impacted lower catastrophe layers and aggregates.Capacity for cyber aggregates was also limited
Emerging risk factors, including climate change, cyber threats, core inflation and social inflation,will continue to influence reinsurers’ approach to pricing and capacity allocations.
London:
January 1 renewals reflected a healthy but evolving market as reinsurers adjusted risk appetite and pricing thresholds for certain sectors in response to ongoing and emerging challenges. Despite this, the majority of placements were ultimately orderly once cedents’ terms were issued, as market participants effectively traded through a dynamic environment, according to a report from Guy Carpenter, the reinsurance unit of Marsh McLennan
The sector once again proved its ability to meet an ever-changing risk landscape, said the report.
Key Findings
• The most significant macro influences at renewal included climate change, core inflation, social inflation, continued underlying positive rate change across most lines of business, and the continued evolution of the frequency and severity of catastrophe loss.
• Reinsurers continued to expand their differentiation of each client’s unique placement characteristics. These include a view of underlying risk, loss experience,claims performance, strength of management,business strategy, perceived adequacy of pricing and structure, and depth of the client relationship.
• Conditions were bifurcated between non-loss impacted and loss-impacted programs.
• Capacity was ample for many lines but more constrained for retrocession and some components of property, including loss-impacted lower catastrophe layers and aggregates.Capacity for cyber aggregates was also limited.
• The property renewal process ran up to 14 days behind typical timing, creating a flurry of activity with two weeks (and fewer working days) left in the year. Key drivers of the later renewal included shifting risk views impacting pricing models and capacity allocations,uncertainty around trapped capital/loss estimates and a very late retrocession renewal.
• Casualty renewals were generally orderly, with pressure seen in several pockets, including cyber aggregate, clash and loss-impacted excess of loss programs.
• The Guy Carpenter Reinsurance Composite index is on track to deliver a combined ratio below 100% for 2021 and a projected reinsurer return on equity of near 10%, even after accounting for over USD 100 billion of global large loss.
• The Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8%
Looking Ahead
• Emerging risk factors, including climate change, cyber threats, core inflation and social inflation,will continue to influence reinsurers’ approach to pricing and capacity allocations. It is clear from January 1 activity that strategies regarding how to account for these factors are evolving and varied. Cedents’ views, particularly when supported by portfolio data, will be a critical component of renewal outcomes.
• Environmental, Social and Governance (ESG) continues to grow in importance for key stakeholders and is seen as not only a positive conduit for change, but also as an indicator of financial outcomes.
While not yet explicitly impacting capacity or pricing broadly, there is a noticeable increase in reinsurer interest, with some indicating that changes to the overall underwriting process and partner selection relative to ESG criteria are coming.
• Innovation and adaptation to the changing risk landscape remain the hallmark of the (re) insurance sector. As new technology emerges, InsurTechs will remain an extremely active market in 2022.