Property reinsurance prices rose sharply at renewals on Jan. 1, led upward by catastrophe coverage, where supply was short and reinsurers sought to tighten terms.
Strike, riot and civil strife coverage also fell under the microscope, due to global geopolitical concerns, and cyber reinsurance renewals were tough due to the sector’s rapid growth and differing strategies among primary insurers.
Casualty reinsurance markets were fairly calm, most sources said, while the retrocessional reinsurance market was slow to develop, complicating calculations for reinsurers.
The risk-adjusted price change — which accounts for changes in underlying valuations — on property catastrophe deals was generally between 40% and 60% higher in North America and closer to 25% to 35% in Europe, which was firmer than originally expected, said David Priebe, New York-based chairman of Guy Carpenter & Co. LLC. There were “outliers” above and below the ranges, he added.
Mr. Priebe said the supply of capacity was declining, noting that earlier in 2022 several reinsurers announced their decisions to cut or rebalance their portfolios to cover the property catastrophe.
2022 was another significant disaster loss year, led by Hurricane Ian, which caused between $50 billion and $65 billion in insured losses when it hit Florida in September, according to estimates from disaster modeling firms.
Insurers’ balance sheets have also shrunk as a result of downturns in capital markets, forcing them to choose how they want to deploy capital, said New York-based Thomas Holzheu, chief economist, Americas, for Swiss Re Ltd.
Marcus Winter, Princeton, New Jersey-based president and CEO of Munich Re US, a unit of Munich Reinsurance Co., said property prices rose “well into the double-digit range” and in some cases the increases reached 100%.
In its market report released last week, Gallagher Re, a unit of Arthur J. Gallagher & Co., said property reinsurance rates are increasing in The US was between 45% and 100%, Europe saw mid to high single digit increases and the rest of the world was also in positive territory, mostly in the low and mid double digits. Peaks occurred in places like Korea, where prices jumped 50% to 100%.
Reinsurers also pressured primary insurers to increase retentions, said London-based James Vickers, head of international reinsurance at Gallagher Re.
Retentions in North America rose 20% to 50% as reinsurers tried to move up to higher levels of coverage, those in the seven- to 10-year return period from a model perspective, Mr. Priebe.
The return period, also known as a recurrence interval or recurrence interval, is an average time or an estimated mean time between the occurrence of events such as earthquakes, floods, landslides, or river flows.
Negotiations also focused on policy language and terms, with reinsurers pushing for coverage based on named perils rather than all-risk coverage, particularly in North America, said Bermuda-based Christian Dunleavy, group chief executive of insurer Aspen Re, a unit of Aspen Insurance Holdings Ltd. Other sources also noted the move to named hazards.
The Gallagher Re report said Russia’s invasion of Ukraine led to a hardening of the market for political violence and terrorism and sources agreed contract tightening and language clarity were key topics.
Coverage of strikes, riots and civil strife has been “a historic problem,” particularly in emerging markets, Mr. Vickers. “What worried people was that there could be an increase in civil unrest amid high levels of unemployment, inflation and its effect on food prices. Against that environment, insurers are concerned.”
Reinsurers were managing mergers from the risk of strikes, riots and civil strife against a backdrop of “increased social discord seemingly prevalent in the United States and other developed countries,” Priebe said.
Strikes, riots and civil strife are a difficult exposure to model, making it difficult to quantify, sources said.
Another danger that is difficult to model and quantify is cyber, sources say.
“There is a cap on how much reinsurers are willing to write because it overweights their portfolio,” Mr. Vickers. “The capacity issue is really about absorbing the increasing premium volumes” generated by primary insurers as they expand into the sector.
Munich Travel Mr. Winter also noted the emerging nature of cyber coverage and its effects on reinsurance demand. “Demand is growing for primary, but they differ in strategy, some buying more coverage while others retain more risk,” he said.
The crash markets escaped the tumult renewed by real estate.
“Much of the market was relatively quiet, particularly casualty and (motor liability) business, because the primary insurers have done a lot of the heavy lifting,” Mr. Vickers.
The Gallagher Re report showed reinsurance rate cuts in the US up to 15% for professional liability, increases of 10% to 30% for medical liability and increases of 5% to 15% for general liability. The rest of the world showed increases mainly in the low to mid-double digits.
Mr. Priebe described casualty renewals as “orderly” due to “material improvements” in pricing and control limits in the primary market.
Complicating renewals for reinsurers was a late-developing retrocessional market – where reinsurers buy their own coverage – due in part to Hurricane Ian, which led to concerns about a prolonged claims process and the ability for capital to be held against potential losses in the reinsurance and underwriting. -linked securities sector.
“After Ian, funds tried intensively to determine loss levels and captive quantum,” said Kathy McCann, a Boston-based senior broker for Lockton Re, a unit of Lockton Cos. LLC.
The retrocessional market was the “most challenging” and the latest to come together, Mr. Priebe. However, he added that most cedants achieved the coverage they required, “albeit, as a primary catastrophe, at substantially higher retention points.”
Vickers said there is “a growing perception that initial losses were overestimated” for Hurricane Ian, and investors in the collateralized reinsurance and insurance-related securities markets that support retrocessional markets “were more comfortable that their Ian losses will not be as expected” , potentially making them more willing to leave capital in the sector or even allocate more.
“Given the significant changes in the market on 1/1, investor confidence is likely to be restored and capital from various sources will enter the space,” McCann said.