What Jan. 1 renewals wrought on the industry

January 1 reinsurance renewals are behind us, and it seems a more stable, predictable property Cat market has materialized, just as industry experts predicted. 

In Canada, reinsurance renewal pricing varied broadly by buyer, based on overall performance, Gallagher Re in its recent report, 1st View: What a Difference a Year Makes. 

But overall, it’s the companies with loss experience, growing exposures and minimal change to structure that experienced the most variability in quotes and substantial rate increases. Companies that had consistent results with retention adjustments experienced a relatively flat renewal. 

“Per risk programs with loss experience saw considerable pressure on rates and/or retention increases due to a lack of new or additional reinsurance capacity availability. Programs that were loss-free experienced less overall pressure, with pricing adjustments more aligned with exposure change,” Gallagher Re said. 

Globally, capacity has increased nearly 20%, driven by rebounding capital and favourable reinsurer returns, Guy Carpenter predicted in a recent press release. On top of that, total dedicated reinsurance capital increased by an estimated 10%, Guy Carpenter and AM Best predicted. 

“Global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single-digits up for non-loss impacted and 10%-30% up for loss-impacted programs, with a wide range of outcomes around these averages,” Guy Carpenter wrote in the release. 

This year’s also shaping up to be profitable for reinsurers. Projected average returns sit at 20% with the return on capital exceeding the cost of capital, Guy Carpenter said. 

“Property supply and demand has snapped back into balance, with returns for the first three quarters of 2023 exceeding reinsurers’ increased cost of capital,” echoed Gallagher Re. “The structural changes that manifested this time last year really were an exception, with a much calmer renewal period and an improved alignment of all parties’ expectations leading into 2024.” 

As noted, last year’s ‘exceptional’ Jan 1. renewals saw property cat reinsurance rates increase 25% to 30% for portfolios without losses, while other portfolios with losses saw their reinsurance rate increases climb as high as 50% to 70%, experts told Canadian Underwriter last year.  

Climate change and exceeding damage from NatCats, economic impacts such as inflation, and geopolitical tensions all factored into last year’s renewals. Not to mention, supply chain challenges and natural catastrophes were hurting insurers’ loss costs. Those factors combined to mean demand was up, while supply was down.  

But this year, new capital raises, ample retrocession capacity and positive ILS markets, among other factors, have combined to increase reinsurance supply, according to Gallagher Re. 

“The market increased contract-level consistency on both wording and structural variations, thereby reducing non-concurrencies from the previous cycle, a signal of all parties working toward balance in a complicated market,” Guy Carpenter said.  

 

Feature image by iStock.com/Jcomp