January 1 renewals, according to Guy Carpenter, reflected a healthy but evolving market as reinsurers adjusted risk appetite and pricing thresholds for certain sectors in response to ongoing and emerging challenges. Despite this, the majority of placements were ultimately orderly once cedents’ terms were issued, as market participants effectively traded through a dynamic environment.
The sector once again proved its ability to evolve and grow to meet an ever-changing risk landscape.
Key Findings
The most significant macro influences at renewal included climate change, core inflation, social inflation, continued underlying positive rate change across most lines of business, and continued evolution of the frequency and severity of catastrophe loss.
Reinsurers continued to expand their differentiation of each client's unique placement characteristics. These include a view of underlying risk, loss experience, claims performance, strength of management, business strategy, perceived adequacy of pricing and structure, and depth of the client relationship.
Conditions were bifurcated between non-loss-impacted and loss-impacted programs.
Capacity was ample for many lines but more constrained for retrocession and some components of property, including loss-impacted lower catastrophe layers and aggregates. Capacity for cyber aggregates was also limited.
The property renewal process ran up to 14 days behind typical timing, creating a flurry of activity with two weeks (and fewer working days) left in the year. Key drivers of the later renewal included shifting risk views impacting pricing models and capacity allocations, uncertainty around trapped capital/loss estimates and a very late retrocession renewal.
Casualty renewals were generally orderly, with pressure seen in several pockets, including cyber aggregate, clash and loss-impacted excess of loss programs.
The Guy Carpenter Reinsurance Composite index is on track to deliver a combined ratio below 100% for 2021 and a projected reinsurer return on equity of near 10%, even after accounting for over USD 100 billion of global large loss.
The Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8%.
Key Renewal Commentary
Property
As clearly evidenced throughout 2021, advanced preparation and planning were critical to achieving satisfactory renewal outcomes. Identifying key renewal drivers and alignment of partner appetite led to better pricing and capacity allocations.
Overall, there was sufficient capacity to complete programs, with more market appetite for non-loss-impacted upper layers. Capacity was more constrained on lower layers, aggregates, multi-year and per risk, particularly if loss-impacted, as reinsurers reassessed risk appetite and inflationary impacts.
Inflation was a critical and technical part of negotiations. Insurers providing validation that inflation adjustments were already well-reflected in their rate modifications and insurance-to-value increases ultimately experienced minimal additional impact.
Individual cedent differentiation was apparent for both non-loss and loss-impacted accounts in both pricing and capacity allocation outcomes.
While pricing exhibited a wide range on a risk-adjusted basis, non-loss-impacted business was generally flat to up 7%, with loss-impacted up 10% to over 30%.
The Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8% year-on-year. Structure adjustments, particularly on retentions, were more prevalent in heavier loss-impacted sectors.
Retrocession
In another year affected by catastrophe events, property retrocession renewals experienced price increases in aggregate and occurrence products, with the largest changes in loss-affected accounts as well as low-lying aggregate placements following reductions in available capacity.
There was a material variance in pricing depending on loss experience in 2021 and for aggregate contracts in particular, loss history became a much more dominant pricing metric than in prior years.
The effect of this on buyers was to see some increased retentions and a greater prevalence of occurrence structures where capacity was more readily available at a price.
Capacity was less restricted for direct and facultative catastrophe covers than for retrocession, although it experienced some similar dynamics with reinsurers typically looking to move from frequency areas of programs.
Casualty
Continued positive underlying rate movement across casualty lines factored heavily into renewal outcomes, as prospective loss ratios showed continued improvement.
Another important consideraton in reducing loss projections is ongoing underwriting discipline. Factors include limits management and tighter underlying policy terms and conditions.
These improvements drove quota-share ceding commission increases ranging from flat to up 1.5 points for excess casualty and flat to up 2.5 points on financial lines. For cyber, rate improvements were viewed as an offset to ransomware concerns, making flat ceding commissions common.
In contrast to pro rata placements, casualty excess of loss programs saw a continued reinsurer push for margin improvement after years of competitive market pricing and volatile results.
Loss-impacted renewals were the most challenging and experienced some panel turnover.
Casualty renewals were orderly, with any delays being driven by general market lag as well as negotiations across placements.
Casualty capacity was generally sufficient. However, outcomes ranged widely based on casualty line and capacity requirements. Financial lines benefited from the healthiest reisnurer appetite, with cyber aggregate being the most challenged.
Early distribution of detailed, high-quality underwriting information together with a broad and effective marketing stretegy were highly influential in an effective placement process.
Specialty
Aviation
Airline insurers have had to be nimble with their income forecasts as they were faced with many variables, including rate expectations and flying customer volumes. The general aviation and aerospace markets have been relatively unaffected by COVID-19.
After two years of increases, reinsurers priced as before or slightly higher (up 2.5%) as an average across programs on a risk-adjusted basis. Profitable treaties received minor increases in commissions. Space clients completed their panels with relative ease at January 1.
Trade Credit
Low loss ratios and lower than forecasted claims led to reinsurance capacity from incumbent markets exceeding demand for programs. Therefore, opportunities for new entrants were limited.
As expected, cedents regained price movements at January 1 with proportional treaty ceding commissions increasing, and risk-adjusted improvements realized for excess of loss programs.
Marine
Any claims activity was price-sensitive, and the South African riots led to some restructuring of select composite programs with more specific terror coverage being purchased.
Overall, reinsurers maintained underwriting and structure discipline. There was plentiful capacity when pricing was deemed adequate, with new entrants having a limited impact at January 1. Internationally, pricing was at the lower end of pre-renewal expectations to flat, with the London markets having a mild hardening with increases in cash spend of approximately 3% to 6%.