Reinsurers are clear about their own retro structures and capacity: Gallagher Re’s Vickers

Reflecting on the April 1 reinsurance renewals, James Vickers, Gallagher Re’s Chairman of International, says that reinsurers were looking “to grow their portfolios and therefore were relatively accommodating within the confines of their own underwriting discipline.”

Speaking to Reinsurance News alongside the release of Gallagher Re’s 1st View Report, Vickers explained that one of the things that underpins the desire to grow is that we’ve had the 2023 year closed.

He said: “At the first of January, we were still speculating that 2023 was looking like a stellar underwriting year and it’s proven to be reinsurers that have done very well. The increase in the amount of capital in the industry now has been largely self-generated, not new capital coming in, and reinsurers’ risk appetite is growing.

“I think the other thing that’s important is compared to this time last year, reinsurers are clear about their own retrocession structures and capacity. They’ve got the programs in place and they are happy with their protections,” he added.

Shifting towards property throughout the April renewals, Vickers noted that property cat pricing depends on the territory, but most territories have seen some fairly substantial rate increases.

“In Japan, there wasn’t much of an increased demand, there was some increased retentions and a little bit of additional vertical buying, but in the wash, not a lot more demand. So a straightforward and orderly renewal with discussions concentrated around price.

“Property per risk is always more difficult, but again, where ceding companies could show significant improvements in what they’re doing on their original underwriting, they could achieve what they wanted.”

Moving forward towards the mid-year renewals, Vickers explains what he expects to see happen when they take place later this year.

“We’ve got a market with plenty of capacity, and it’s not like 18 months ago where we were worried about satisfying additional capacity demands. Capacity is there, whether it’s in traditional market or the ILS markets capacity, it’s there. I think the question is really, for the major reinsurers is are they meeting their internal budgets?”

He continued: “Everybody has talked about 2023 being a great year, and it is producing some of the best underwriting conditions in a generation. Everybody wants to grow in this market and the question is, how much do reinsurers want to grow versus, perhaps reducing their underwriting standards to hit revenue targets, that has not really been tested yet?

“What we saw at 1/1 is some reinsurers probably didn’t hit their premium volume targets. Certainly at 1/4 some of them weren’t either, and then the question is, do they really care? Are they prepared to have perhaps, slightly less growth, but a better priced portfolio, or are they actually looking to grow?

“What we’re seeing a lot of is that line underwriters are having to justify everything they write to their senior management, and if it’s rate reductions, there has to be a very well articulated argument, a lot of it around changed views of risk, etc., which can enable their senior management to look at individuals cases and put any form of rate reduction into context.”

Lastly, with the April renewals delivering increased demand and availability of capacity, Vickers emphasized whether we should expect it to see it continue in the mid-year renewals too.

“There is no reason why it won’t. There was plenty of capacity at 1/1 and 1/4. There will be increased demand from inflation increasing underlying values as well as organic portfolio growth. I don’t see any abating of demand and I think the traditional market and the ILS market between them will be able to cope with that quite comfortably.”

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