Property reinsurers push Europe into hard market at 1/1 renewals

European reinsurance buyers once again faced a hard market at January renewals after ten years at the bottom of the cycle, according to Gallagher Re. Reinsurers drove a late renewal season that saw property rates move from hardening to closer to a hard market in November and December, following Hurricane Ian, the broker said. “Arguably, in two months the European property market re-set ten years of downwards cycle,” it added. Property rate increases for European insurers averaged at between 20% and 30%, while property cat rates ran at between 25% and 40% higher on loss-free portfolios, according to Gallagher Re. Rates for US property catastrophe loss-free books were 25% to 50% higher at 1 Jan, while rates for loss-affected portfolios were up by between 45% and 100%. In agreement with other brokers, Gallagher Re said late 1 Jan renewals offered by reinsurers had been “frustrating” and “gruelling”. It said reinsurers stood firm on their positions to the point of fracturing relations with buyers. “This was described by many as a very tense renewal, with little flexibility shown by reinsurers and some hard fought ‘wins’ at the expense of damaged client relationships and reduced confidence from some buyers in the reinsurance product,” said Gallagher Re. Some clients said efforts to approach markets early and with more detailed renewal presentations to address concerns about inflation had not been recognised. “Accepting to lose existing relationships, reinsurers were determined to force through these changes motivated by their own internal pressures of poor past results and restricted capacity for European wind, often influenced by limited availability of retro coverage – other reinsurers were willing to step up but only at a price,” said Gallagher Re. Some buyers suspect reinsurers used delaying tactics in the renewals process this season, which completed weeks later into December, in a bid to force through changes to terms, Gallagher Re said. At the same time, the broker said some reinsurers were unable to commit to renewals and only a limited number of reinsurers offered timely quotes. Ultimately though, the specifics of the 1 January 2023 renewals saw traditional European reinsurance markets take a larger share of property renewals. And insurance buyers will feel the pinch of higher reinsurance prices at their next renewal. James Kent, CEO of Gallagher Re, said: “For 2023, the property treaty market has hardened considerably, and now many clients face the challenge of increased reinsurance costs, increased retentions and more restricted coverage knowing that the original market pricing environment will take time to move upwards.” Kent said political violence renewals were also demanding at 1 January, with the market slow to reach 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,” Kent said. Reinsurance buyers saw political violence and terror (PVT) cover unbundled, and clients were asked to buy standalone structures to protect their portfolio. This resulted in higher retentions and tougher loss occurrence definitions, with time and distance restrictions added for all perils, Gallagher Re said. Restrictions were imposed for all exposures to Ukraine, Russia and Belarus. Rate increases for PVT cover averaged 30% higher for loss-free accounts and up 50% for loss-affected portfolios. Gallagher Re said a much calmer renewal round was established for casualty treaty renewals at 1 January, which did not need the same level of correction as the property market. It said renewals were seen as tough but fair by most buyers. “Reinsurers, while wary of prior year development in some instances, saw the benefit of improved original pricing,” with capacity and prices holding steady, Kent said. Gallagher Re said the “seismic change” in the aviation reinsurance market has impacted all sub-classes, driven by deterioration in prior year claims and contingent leasing losses looming from aircraft stuck in Russia. As a result, rates for excess of loss placements ran at between 150% and 200% of expiring levels, with further hardening to come as retro capacity tightens, Gallagher Re said. Renewal rates for loss-free portfolios cost buyers between 100% and 150% more at 1 January. Following the recent round of broker reports on 1 January reinsurance renewals, analyst Berenberg said pricing is in line with, or above, already high expectations. Attachment points and retentions are higher, but it said stricter coverage terms, in particular for named perils, has not materialised. “In our view, the market has made significant strides to improve profitability, particularly in underperforming property nat-cat business,” Berenberg said. But it asked how long the hard reinsurance market can run for, particularly with more capital likely to enter the market in 2023 to take advantage of the best property rates seen in decades. “Inflationary pressures, rising interest rates and high nat-cat losses are key drivers of this hard market, and thus, should these drivers persist, they will also continue to put pressure on rates,” said Berenberg. And it stressed that many of the problems in the reinsurance market will impact buyers of primary insurance. “Higher reinsurance prices will trickle down to the primary market, which means the primary buyer and consumer will bear the ultimate cost, posing a risk for the overall market,” Berenberg said.

Property reinsurers push Europe into hard market at 1/1 renewals

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