Amid a backdrop of economic pressures on reinsurers and cedants, nearly all buyers were able to secure cover during the July 1 reinsurance renewal period. However, attachment levels and the cost of ceding risk were higher than what most buyers wanted, and supply restrictions in some lines and territories led to stresses that haven’t been seen in years. As such, the reinsurance market has remained on its firming trend, according to Gallagher Re’s latest 1st View renewals report.
Despite mostly satisfactory H1 2022 results, the combination of inflation and hiking interest rates have caused reinsurers to adjust their balance sheets and reserves, at the same time considering how a recessionary environment may increase claims frequency.
Along with sustained loss levels, these economic factors allowed reinsurers to maintain upwards pricing pressure as they look to reduce their appetite for volatility.
The Gallagher Re report also shared the following key findings:
- There was an overall reduction in natural catastrophe capacity, as reinsurers continued to move gradually away from low level layers, differentiated by country and region
- Reinsurers were seen taking stock of cedants’ actions in response to inflation, applying carefully calculated loadings to relevant treaties
- Russia’s invasion of Ukraine increased attention to cyber and war contract provisions
- Long tail casualty placements remained popular with reinsurers, but debate around ceding commissions was greater than was the case in the recent renewals
- Higher risk prices for ILS risk transfer have attracted net new capital but this has not led to market softening
“Reinsurers are more sensitive to losses and wider external events than they have been since 2008,” said James Kent, global CEO of Gallagher Re. “The discussions about inflation have been detailed and technical, with reinsurers very willing to challenge cedants’ model outputs. Alongside their concerns about primary rate adequacy in the new inflationary environment, most reinsurers are assessing reserve adequacy as interest rates rise.
“They are being impacted on the asset and liability sides concurrently, which has fuelled their resolve to keep the price momentum of the past two years moving forward.”
Kent added that commercial considerations often trumped technical pricing in classes and territories where capacity was constrained.
“Relationships are very important, and competition – while muted – is still present,” he said, adding that reinsurance buyers were able to acquire “most of the coverage they wanted, if not at the prices they had hoped for.”