January 2022 renewals reports

The year-end reinsurance renewals reports by Gallagher Re, Howden and Guy Carpenter, all point towards further improvements in pricing and terms and conditions in both European and US renewals which were generally greater than expectations with property catastrophe rate increases greater than at the same point a year ago.

Reinsurers were determined to obtain better pricing and to move away from loss-making areas but rather than imposing blanket price rises, they differentiated between clients, based upon their record and underwriting controls.

Reinsurers were cautious about various issues, such as: climate change possibly driving the frequency and cost of natural catastrophes; whether catastrophe models reflected climate change sufficiently; the inflationary effect on the eventual costs of losses; their exposure to secondary perils such as wildfire and flood. In some cases, reinsurers had to take into account rising retrocession costs and reduced "retro" capacity as capacity from ILS funds was reduced.

Some extracts from Guy Carpenter's report available here

1. Average +10.8% increase in their Global Property Catastrophe Rate on Line ("ROL") index (see chart below) the biggest increase since 2006 and brings the index close to 2014 levels;
2. Loss-free renewals ranged from flat to +7%;
3. Loss-impacted renewals ranged from +10% to over+30%.

Guy Carpenter's report mentions that the separate but important casualty renewals were also positive for reinsurers, benefiting from the continuingly improving terms and conditions charged by insurers.

Some extracts from Gallagher Re's report available here

1. Property cat rating movements varied greatly by territory and client with large increases being seen on loss hit programmes but more modest changes on loss free programmes. For some reinsurers, the increases were insufficient resulting in a withdrawal of capacity or in many cases only renewing signed lines and not the expiring written line capacity, particularly on lower attaching layers exposed to secondary perils.
2. Larger than expected price increases of +15% to +50% on loss-impacted German, Austrian, Belgian and Swiss renewals following the July floods (estimate US$11bn to US$15bn);
3. US loss-impacted renewals up between +10% and +25%;
4. US loss-free renewals up between +2.5% and +10%
5. Covid: The market appears to have moved on from the Covid-19 claims of 2020 as primary companies’ claims reserves stabilise and reinsurance recoveries have started to move through the market with an increasing number being settled.

Some extracts from Howden's report available here

1. Global Property-Catastrophe Risk-Adjusted Rate-on-Line Index rose by +9% at 1 January 2022. This was higher than the +6% recorded last year, and the biggest year-on-year increase since 2009, taking the index back to pricing levels last recorded in 2014;
2. Retrocession: Trapped ILS capital and another year of large loss events created a difficult retrocession renewal. Risk-adjusted retrocession catastrophe excess-of-loss rates-on-line rose by 15% on average. Cumulative increases equal to an average increase of more than 75% since 2017, levels last seen in 2009;
3. Casualty: Increases of up to +5% on London market casualty;
4. Covid: litigation around business interruption is now underway, and despite mixed verdicts depending on jurisdiction, insurers have mostly prevailed in the United States, even for policies where no exclusions existed... Whilst longer-tail liabilities may yet materialise, (re)insurers have a considerable buffer having set conservative loss picks, with a sizeable portion of losses still booked
   as incurred but not reported.

Howden pricing index for primary, reinsurance and retrocession markets – 2012 to 2022

Outlook

Much of the January renewal business is actually European so that averages down the average global rate increases quoted above. We expect the US reinsurance renewals to show another round of increases. As Howden's report mentions "The loss environment - epitomised by the three Cs of Covid, climate and cyber - are generating additional demand for risk transfer in an era of heightened risk premia".

Hampden reports

Hampden Underwriting Research (HUR) will provide further information in printed and video/podcast form for clients in due course.