“Despite this more uniform and global approach, a client-led underwriting process remained evident. Clients and markets who had seen significant price increases and tightening of reinsurance conditions in recent years consequently experienced more measured increases,” said James Kent,Global CEO, Gallagher Re
London:
The April 1 renewal season has seen a continuation of the discipline shown by reinsurers at January 1 but with a greater determination that pricing and contract improvements are applied across all territories and to all business lines, said Gallagher Re on Monday.
The January renewals did see some smaller territories being treated more favorably than major mature markets, but this differentiation has largely vanished by April, pointed out the reinsurance broker..
“Despite this more uniform and global approach, a client-led underwriting process remained evident. Clients and markets who had seen significant price increases and tightening of reinsurance conditions in recent years consequently experienced more measured increases,” said James Kent,Global CEO, Gallagher Re.
However in some smaller markets, where terms and conditions have remained largely unchanged for many years, the pressure from reinsurers seeking to correct soft market conditions in a single renewal has been intense, he explained
For Japanese buyers, both client and reinsurers expectations were better aligned than at January 1, which led to a more orderly renewal process. This was aided by both the long-term nature of reinsurer relationships in the Japan market as well as the considerable
improvements in primary underwriting that Japanese insurers have achieved in recent years.
Unfortunately, in other smaller markets there were examples of major structural changes being enforced at the last minute and quotes being delayed to minimize negotiating time, said Gallagher Re.
The impact of these structural changes has been both unexpected and profound on the financials of some insurance companies and is leading to an immediate impact on their original underwriting with all the challenges that this entails, causing significant strain in some of the client and reinsurer relationships,.
In line with what was witnessed at January 1, the April renewals of long tail classes have been less contentious, remaining calm and logical–though US casualty nuclear awards are increasingly making their presence felt on many US casualty placements, and in some instances on treaties with incidental US exposures, said Gallagher Re..
The notable exception has been US Public D&O where pressure on ceding commissions remains following decreases of up to 2 points at January 1. Reinsurers cited continued prior year adverse development and negative rate in the underlying market as the drivers of these shifts while cedants countered that portfolio dynamics are less volatile and renewal rate change is misleading given impact of IPO/SPAC and de-SPAC business in recent years.
Capital supply remained constrained with few signs of fresh capital entering the market and existing reinsurers being impacted by mark to market investment losses. ILS issuance is picking up and remains expensive compared to previous years with pricing and capacity in line with traditional indemnity pricing, said the report..
The overall market supply demand dynamic remains delicately poised with sufficient capacity available at April 1 to meet clients’ needs;however, since the largest capacity requirement at April 1 remains Japan, which represents a significantly lower than peak US cat exposure demand, the renewal cannot be regarded as a true test of market supply demand dynamics, added the report.
The reinsurance market remains stressed as reinsurers seek to achieve reasonable returns on their capital whilst nursing large mark to market investment losses.
Headline capital in the global insurance industry has reduced as a result of investment losses but provided reinsurers do not have to realise these losses through the early sale of underlying assets the underlying economics remain sound providing ceding companies with secure capacity.
The hopes of some buyers that new capacity might enter the market at this renewal–
and some signs of amelioration in hardening terms and conditions would emerge– remain unfulfilled.
This is pushing primary companies back to reexamine their original underwriting strategies, which in the current strained economic environment is extremely demanding to address with original policyholders, said Kent.