Areas of most constraint were peak-zone US property cat and coverage for war and SRCC, finds Gallagher Re’s 1st View

The global reinsurance market has endured a complex and in many cases frustrating renewal process which has gone down to the wire, according to the 1st View January reinsurance renewals report by Gallagher Re. 

As anticipated before negotiations began, the two areas of most constraint were peak-zone US property catastrophe capacity and coverage for strikes, riots & civil commotion and war.

In most other lines and regions, buyers have largely been able to source capacity, albeit at a higher cost and in many cases changed structures with an increase in attachment points and the raising of the ‘floor’ on minimum rates on line, a key focus for many reinsurers.

Grueling renewal period

James Kent, Global CEO, Gallagher Re, said: “The renewal process has been grueling for participants, many of whom have not faced such a rapid change in market conditions across a single renewal season. Political violence renewals have been especially demanding in terms of finding a market consensus.

“The differences in opinion between buyers and sellers were aggravated by the perception that there was time to reach agreement on the complex issue of the Ukraine/Russia conflict well in advance of renewals.

“Times of significant market change are always challenging to navigate but we have seen a significant difference in the ways that individual reinsurers have reacted despite a widespread stated ambition to grow premium volumes in what is being viewed as the best treaty underwriting terms and conditions for a generation.

“Some have reached the end of the renewal season with reputations enhanced, exercising a firm, fair, transparent approach based on a commitment to their own view of pricing adequacy.

”Others who have acted less deftly may find sustaining long term client relationships more challenging, especially once capital and competition rebuild in the global reinsurance market.”

Capital relief on the horizon

Key factors prevalent throughout the renewal process included:

  • A divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute
  • Clients with broad trading relationships facilitated negotiations with some reinsurers to be ‘packaged’, helping generate preferred pricing and/or increased capacity
  • European property renewals generally being completed earlier than those for US clients albeit much later than the previous norm, in some instances by as much as a month or two
  • A casualty treaty market viewed as calmer and more rational than other parts of the business, and with renewals completed at terms seen as tough but fair by most buyers

The improvements in pricing and conditions particularly for property cat-related lines has led to some new capacity coming into the market from a combination of modest capital raising by existing reinsurers, a reallocation of internal capital by some reinsurers and notably some primary carriers with existing reinsurance operations.

ILS and collateralised markets have seen little signs of new capital entering but lower estimates from certain clients on Hurricane Ian losses has eased some concerns over trapped capital and helped to provide much needed additional liquidity for retrocession buyers in the last few weeks of the renewal.

In the stressed US natural catastrophe market, more positive signs of regulatory reform are tentatively emerging and while not impacting the 1/1/2023 capacity challenge may provide some tangible relief further into 2023.