Reinsurance renewal prices at Jan. 1, 2020, broadly rose by single-digit percentage points, but accounts with losses saw more substantial increases as rates diverged, sometimes sharply, along geographical lines and loss records, industry sources said.
For retrocessional coverage, which reinsurers buy to protect their own books, capacity was crimped by slower growth in alternative capital and insurance-linked securities markets as portions of those funds remain “trapped,” earmarked for developing losses from previous events.
“Renewals at Jan. 1 experienced a broad range of outcomes depending on several factors such as line of business, geography, historical performance and other company specific factors,” said Lara Mowery, managing director, head of global property specialty at Guy Carpenter & Co. LLC in Minneapolis.
“There’s a tendency to try to simplify everything,” said Mike Van Slooten, head of business intelligence for Aon PLC’s reinsurance solutions business in London. “The reality is there’s an awful lot of different types of business in different regions around the world that gets renewed.”
Data released last week by Willis Re, the reinsurance brokerage unit of Willis Towers Watson PLC, showed loss-free property accounts paid increases of up to 10% in the United States, Canada and China, but many accounts renewed with single-digits increases, flat, or even decreases in places like the Middle East and Indonesia.
Loss-hit property accounts saw increases of up to 50% in the U.S and up to 40% in Canada. Other regions, such as Central and Eastern Europe, also saw double-digit increases.
U.S. property reinsurance rate increases were driven by loss affected lines and regions but were tempered by continued “very strong” industry capital levels, said Brian Schneider, senior director for Fitch Ratings Inc. in Chicago.
Liability reinsurance rates diverged sharply on loss history, according to the Willis Re report.
Liability programs with no losses renewed largely flat or with single-digit increases or decreases. Loss-hit accounts, however, were almost universally hit with increases, with many in the double digits.
U.S. general third-party liability reinsurance accounts increased up to 30%, U.K. auto liability reinsurance rates were up as much as 35% and liability reinsurance rates in France increased 10% to 25%, the Willis Re report said.
Some of the increases still may not cover escalating loss-costs, sources said.
“Certain casualty classes that have been running well-above a combined ratio of 100 for some time are commanding more rate, but not to a level sufficient to cover the threat of costs associated with social inflation, which is plaguing some liability classes,” said Robert DeRose, senior director for A.M. Best Co. Inc. in Oldwick, New Jersey.
In recent months, numerous property/casualty insurance and reinsurance executives have spoken about rising jury awards and settlements driving “social inflation.”
“Casualty market reinsurance pricing is benefiting from improvement in the underlying insurance pricing, especially through proportional treaties. However, it remains to be seen if the rate increases will be enough to cover the rising loss cost severity due to social inflation,” said Mr. Schneider of Fitch.
Renewals also took longer to negotiate, with some renewals running past the year-end deadline, sources said.
“Overall, market conditions have clearly tightened, and the completion of renewals generally fell later in the cycle,” Ms. Mowery said.
Retrocessional markets, meanwhile, are being hit by limited growth in alternative capital and insurance-linked securities funds being held to cover emerging losses, sources said.
“The one area of the market I think is going to be quite difficult is the retrocession market,” Mr. Van Slooten of Aon said. “A lot of that capacity has been provided by the ILS funds and that area of the market has been heavily impacted by the catastrophe losses we’ve seen. There is clearly less capacity in that area of the market.”
“The retrocession market continues to experience high dislocation as a third year of trapped capital has kept ILS capacity limited,” Mr. Schneider said. “As such, overall retro pricing is up double digits on both occurrence deals and aggregate treaties and even more so for loss impacted accounts.”
“There’s been a delay in people being able to make commitments,” Mr. Van Slooten said. “People wanted to wait as long as possible to let the Atlantic Hurricane season expire, to give themselves as much time as possible to see how the typhoon losses develop in Japan.”
“The longer-than-anticipated claims settlement associated with some catastrophe losses has led investors and capacity users to pause and assess what changes need to be made in underlying agreements,” Mr. DeRose said.
