In most other lines and regions, buyers were mostly able to source capacity, but this came at a higher cost and, in many cases, changed structures with an increase in attachment points and the raising of the “floor” on minimum rates on line, which was a key focus for many reinsurers, Gallagher Re said.
“The renewal process has been grueling for participants, many of whom have not faced such a rapid change in market conditions across a single renewal season,” said James Kent, global CEO of Gallagher Re. “Political violence renewals have been especially demanding in terms of finding a market consensus. The differences in opinion between buyers and sellers were aggravated by the perception that there was time to reach agreement on the complex issue of the Ukraine/Russia conflict well in advance of renewals.”
Gallagher Re identified several key factors throughout the Jan. 1 renewals, namely:
- A divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute;
- Clients with broad trading relationships facilitated negotiations with some reinsurers to be “packaged”, helping generate preferred pricing and/or increased capacity;
- European property renewals generally being completed earlier than those for US clients albeit much later than the previous norm, in some instances by as much as a month or two; and
- A casualty treaty market viewed as calmer and more rational than other parts of the business, and with renewals completed at terms seen as tough but fair by most buyers.
“Some [reinsurers] have reached the end of the renewal season with reputations enhanced, exercising a firm, fair, transparent approach based on a commitment to their own view of pricing adequacy,” Kent said. “Others who have acted less deftly may find sustaining long term client relationships more challenging, especially once capital and competition rebuild in the global reinsurance market.”
Improved pricing and conditions, especially in property cat-related lines, has encouraged some new capacity to enter the market, in the form of modest capital raising by existing reinsurers, a reallocation of internal capital by some reinsurers, and some primary carriers with existing reinsurance operations.
Gallagher said that there are few signs of new capital entering ILS and collateralized markets, but lower estimates from certain clients on Hurricane Ian losses have eased some concerns over trapped capital and helped provide much-needed additional liquidity for retrocession buyers in the last few weeks of the renewal.
