Reinsurance broker Guy Carpenter has claimed that, despite the evident challenges at this reinsurance renewals, “placements were largely completed at client issued structures and pricing,” while the broker also says that reinsurer views at the outset threatened “to erode the core value of the reinsurance product.”
“In a renewal season that was extremely late, ultimately, placements were largely completed at client issued structures and pricing, without many of the requested modifications in coverage. Reinsurers presented fractured views at the outset, with more extreme coverage modifications threatening to erode the core value of the reinsurance product,” the broking giant said today.
Calling the January 2023 reinsurance renewals “one of the most challenging reinsurance markets the sector has experienced,” Guy Carpenter said it believes that cedents and reinsurers have been working “to establish a new market equilibrium.”
The broker even says that many non-concurrent coverage issues have been resolved, which had threatened to be a significant issue for some cedents as they move into 2023.
Progress has been made in finding paths to completion, but there is still work to complete, Guy Carpenter continues, saying “this is not yet a settled market.”
“Looking past the renewal of January 2023, it’s important to remember that we have been at crossroads before,” Dean Klisura, President and CEO, Guy Carpenter said.
“In prior reinsurance cycles, significant catastrophe loss events such as Hurricane Andrew, the attacks of September 11, 2001, and Hurricanes Katrina, Rita and Wilma were the catalysts for market corrections that preceded new capital entering the sector,” Klisura continued.
Adding, “It is imperative that the industry stay focused on providing workable client solutions, thorough coverage and balanced pricing for the long-term sustainability of cedents and markets. Our top priority is ensuring that clients are getting the coverage and clarity they require in order to conduct their business.”
Property reinsurance renewals have been the most challenged, the broker said today, with pricing, attachment and coverage all in focus for adjustments.
However, Guy Carpenter says that “coverage changes that presented the most extreme erosion of value were not widely taken up,” while the main areas of market-wide adjustment tended to be limited to terror and strike, riot and civil commotion (SRCC) clauses.
The property catastrophe reinsurance renewals were “stressed”, which Guy Carpenter states led to “pricing and structural changes unsupported by technical considerations.”
“While conditions warrant a market correction, not all outcomes were logical or sustainable,” Guy Carpenter believes.
But still notes that, “Average price adjustments and increased attachment point movements were substantial across the portfolio, worldwide.”
While some reinsurers have pulled-back on property and catastrophe risks, others have increased their appetites, the broker said, explaining that it believes “future outcomes should stabilize as capacity deficiencies moderate.”
Interestingly, Guy Carpenter said that the “expected inflation-driven increase in demand did not materialize.”
But then the broker adds that, “buyers reassessed the cost/benefit of additional limit purchases, which resulted in only negligible increases.”
So, rather than demand not materialising, it seems it was likely there, but evaporated at the elevated pricing experienced, which aligns with what we’re being told.
David Priebe, Chairman, Guy Carpenter, added, “As reinsurers adjusted their approach, Guy Carpenter worked closely with our clients to prepare for more detailed, technical discussions and to strategize on multiple solutions in a shifting environment, finding pathways to achieve viable renewal outcomes. We all recognize a healthy, dynamic and responsive reinsurance market is crucial to the global economy and our collective success.”
We should perhaps expect there to be bifurcating views as to how this renewal season has played out, across different sides of the market, that’s natural for a market environment that has been so challenged.
Guy Carpenter’s initial commentary released today speaks to a renewals that is getting completed, although reading between the lines it is very clear just how difficult a process it has been and also that the broker feels the markets have been irrational at times in their demands.
Read all of our reinsurance renewals news and analysis here.