Reinsurance buyers saw sharp rate hikes during the June 1 renewals, which largely focus on the Florida windstorm market, and reinsurers sought to delay anchor points to reduce claims rates at lower inventories.
After a tumultuous renewal on January 1, where double-digit interest rate hikes were common, cedants, brokers and reinsurers began talks early ahead of mid-year.
“For the most part, the renewal was orderly and everyone was able to get the capacity and coverage they needed, albeit at higher prices,” said Chris Dittman, head of Florida strategy at Aon PLC’s reinsurance solutions unit, adding that the higher costs were in largely within the expectations of all parties involved.
The absence of sticker shock was largely due to better planning, Dittman said. “The reinsurance brokers did a much better job of preparing the carriers on June 1for this renewal. There was more preparation. We started earlier.”
Some reinsurers approached key clients early, said Adam Schwebach, Tampa, Fla.-based vice president and branch manager of Gallagher Re, the reinsurance brokerage unit of Arthur J. Gallagher & Co.
“In contrast to the extremely late and very out of order January 1, June 1 was more orderly and less out of order. Programs were largely filled in the past, but this was very dependent on the price hitting the right hurdle,” said Christian Dunleavy, Bermuda-based Group Head of Underwriting at Aspen Insurance Holdings Ltd. Higher-quality insurers were able to secure capacity first, he said.
Recent comments from brokers about risk-adjusted rate hikes in the 30% to 40% range on June 1 were likely correct, Mr. Dunleavy.
A report issued last week by London-based Howden Broking Group Ltd. showed that risk-adjusted property catastrophe reinsurance priced 33% on average within a typical range of 25% to 40%. The lowest layers of reinsurance towers proved most challenging.
“Low property catastrophe remains the most challenging segment of the market to fill, especially on portfolios that cover multiple geographies and perils,” said Justin Lorence, a Minneapolis-based senior broker at Lockton Re, a unit of Lockton Cos. LLC.
“Not surprisingly, low stocks are still the hardest to place,” Mr. Dunleavy.
Schwebach said some of the perils that more often hit lower reinsurance stocks, such as hail damage from severe convective storms, are moving to captives as the risks become increasingly difficult to place.
Randy Fuller, New York-based managing director at Guy Carpenter & Co. LLC, said many of the more difficult coverage negotiations were worked through during the Jan. 1 renewals, meaning there were fewer midyear surprises.
Property valuations were also a problem as construction and repair costs have increased due to inflation.
“Over the past decade, exposure has grown, but it often did not have property reinsurance anchor points, which led to reinsurance structures being hit more often,” said Matt Junge, Schaumburg, Illinois-based head of property insurance for Swiss Re Ltd.
Increased losses have come from hazards such as wildfires, tornadoes, hail and winter storms, he said.
“Reinsurers want to reset anchor points to something more sustainable in the long term. Insurers looking for reinsurance to protect loss rates are still having trouble finding enough capacity, and those that do find the capacity are paying much higher prices for it,” Junge said.
While adequate values have always been important to property insurers and reinsurers, “the focus on them has now increased because of inflation and increased loss trends,” Junge said.
Lower layers of reinsurance coverage, which are subject to the highest loss rates, have been the most difficult to renew, along with programs that have had generally challenging experiences in recent years, he said.
Layers of coverage at higher anchor points that have avoided activity for secondary peril losses are more favored by the reinsurance market, Junge said.
Cedors were diligent in how they presented valuation assumptions in their data and how they expect those values to evolve during the hurricane season, Mr. Lorence of Lockton Re. Reinsurers seemed receptive and appreciative of the increased transparency, he said.