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Jan 30, 2020

January Renewal Reports - Wills Re & Guy Carpenter

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Willis Re’s and Guy Carpenter’s reviews of the January 2020 renewal season make the same points for the main sectors, summarised below:

Retrocession (see diagram below for reminder)

Terms have clearly tightened as a result of “alternative” capital contracting, caused by some exiting investors, as well as trapped capital * and fewer investors entering the market in time for the January renewals which were described as being “challenging”. Guy Carp estimates the capital behind the ILS sector contracted by 7%. Significant rate increases seen – varying by classes of business. Willis Re recorded (see attached for full report) non-marine retro rates increases as follows:

Catastrophe loss free renewals

+5% to +25%

Catastrophe loss hit renewals

+15% to +35%

The significance of these rate increases is that they should compel reinsurers to raise their prices on their inwards business as they have had to pay much more for their own protections.

Reinsurance

Unsurprisingly following the losses of 2017 and 2018 (with deterioration of some of these experienced during 2019), reinsurers’ and investors’ views of risk have altered and they are pulling out of some areas and adjusting their portfolios and making pricing corrections. GC’s chart (page 3 of attached) shows a 5% increase in worldwide property catastrophe rates – so the rates have been increasing for three consecutive years. Some of the larger rate increases as given by Wills Re were:

Catastrophe loss free renewals

Catastrophe loss hit renewals

Canada

0% to +5%

+5% to +10%

U.S

0% to +5%

+10% to +20%

January’s renewals contain mostly business from areas not impacted by the 2017 and 2018 losses so the demand for higher pricing was not fully achieved, for example:

Catastrophe loss free renewals

Catastrophe loss hit renewals

Austria

-7% to +0%

0% to +2%

France

-5% to +0%

+3% to +10%

Other reinsurance classes such as US casualty showed much more consistent hardening in terms and conditions and some US renewals with losses emerging from previous years were up +15% to +30%.

Insurance

The seemingly everlasting soft market in US property insurance is over and both brokers record another quarter of rate increases – the 8th consecutive quarter of price increases – a trend that is outpacing reinsurance pricing movements. Lloyd’s is a large writer of US property insurance so this will be helpful to several of the syndicates supported by Hampden.

Conclusion

The upshot is that both insurance and retro are showing hardening market trends and the reinsurance market is in loss-impacted areas of the world. Market sentiment for rate correction is growing so we expect the Japan and US renewals later in the year to push the market higher. Reinsurers have been much more judicious in how they allocate their capital according to Willis Re “with more divergence [of views] that at any point in many years.” Hampden Underwriting Research will provide a review of the market in the first quarter of 2020.

Notes

Retrocession - syndicates and companies buy reinsurance protection for limiting their peak exposures. As a result of the returns made and QE, new and significant amounts of the capital available to write this business have come in recent years from “alternative” sources such as hedge funds and private equity investors, collectively described as the ILS market.

Reinsurance - provided to insurance companies throughout the world. Comprises not just property. Many syndicates specialise in this profitable area but In recent years, “alternative” capital has started writing this business which has depressed returns. Guy Carpenter estimates total reinsurance capital up 2% at year-end but “alternative” capital declined 7%. The level of capital available to reinsurers is therefore adequate to meet demand but areas of poor loss experience are seeing rate increases.

Insurance - whether property or marine or cyber. Written by insurance companies and syndicates in Lloyd's

  • So-called trapped capital is unavailable to be used pending clarification of the amount of previous years’ losses. More of a factor following deterioration of some of the 2017/18 losses.