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Reinsurance price rises likely remain on the cards after reset 

Frustrating and gruelling negotiations leading into last January’s reinsurance renewals remain fresh in the memory as the industry prepares for upcoming discussions, with early expectations suggesting further price increases but an overall smoother process. 

Briefings and reports have been released around the Rendez-Vous de Septembre annual gathering in Monte Carlo, which has followed less fraught experiences at renewals in April, June and July. 

The January renewals are mostly concentrated on the major US and European markets, Japan is a key participant in April and Australian renewals are a focus during the mid-year period. 

Reinsurers a year ago achieved a reset. Rates increased, terms and conditions changed, and appetite dried up for the type of frequent losses caused by (deceptively labelled) secondary perils, which include severe storms and floods, as well as bushfires. 

Discussions on the economic and inflationary environment, reinsurance capital, natural peril activity and demand for cover suggest that price rises haven’t come to an end, and reinsurers are keeping their eyes on exposures to frequent secondary-peril type catastrophes and the levels at which they pick up the bill. 

"We have achieved significantly more adequate prices and conditions during this year’s renewals. However, these improvements are not sufficient in view of the still challenging risk situation," Hannover Re CEO Jean-Jacques Henchoz says. 

Swiss Re Property & Casualty Reinsurance CUO Gianfranco Lot pointed during a media briefing to an index reflecting the ratio of premium to expected loss, with the measure returning to 2013 levels, while not reaching peaks reached after Hurricane Katrina. 

“It’s better, but is it good enough?” he said. “We feel it’s not yet commensurate with the risk landscape that we’ve seen, the adequate returns have not yet been reached yet.”  

Swiss Re says the trend “towards a more sustainable balance in risk sharing” is expected to continue as reinsurers focus on their core role as shock absorbers of peak risk, with primary insurers seen as best suited to deal with frequency and attritional losses. 

Mr Lot told the briefing though that “no big shifts” are expected in the upcoming renewals on attachment points after recent shifts on the back of losses over a number of years. 

Last year marked the sixth consecutive year that (re)insurers faced above-average catastrophe losses, with natural catastrophes reaching $US125 billion ($194 billion) globally, according to Swiss Re. 

The pattern has continued through the first half of this year, and Swiss Re estimates that 70% of insured natural catastrophe losses have come from severe thunderstorms. Since the end of June, events have included Hurricane Idalia, the Maui wildfires and floods and storms in Europe. 

Traditional reinsurers and the alternative capital markets are both shying away from secondary perils, as reflected in the renewals last January, and with investors preferring catastrophe bonds to collateralised sidecars. 

“That also implies moving up in risk remoteness,” Munich Re Member of the Board of Management Thomas Blunck told a briefing. “Cat bonds tend to cover higher layers, and less the lower layers like sidecars.” 

Moody’s Investors Service, which maintains a stable outlook on the global reinsurance sector, says 70% of respondents to its latest annual survey of reinsurance buyers expect prices to rise into next year. 

“On the property side, our buyers’ survey suggests that close to 65% of primary groups expect portfolio-wide property reinsurance pricing to rise by 2.5% to 15% over the coming year, with a small proportion of cedants expecting price increases above 15%,” it says. 

Economic uncertainty as well as relatively low new capacity entering the reinsurance market, despite strong demand from cedants, is helping to keep both property and casualty reinsurance prices up, bolstering prospects for improved underwriting profitability for the sector over the next 12 to 18 months, according to Moody’s. 

Monte Carlo discussions around the outlook take place with an awareness that the hurricane season is still in full swing. Last year, Hurricane Ian barrelled into Florida in late September with category four intensity, causing insured losses of $US50-65 billion ($78-101 billion). 

Nevertheless, there’s a feeling that the major reinsurance market reset was accomplished last year, there’s more competition in some areas while terms and conditions remain a focus, and plenty of variation exists in terms of risk appetite.  

“Assuming no disruption to the retrocession market, some easing of current capacity constraints can be expected at upcoming renewals, but concerns around the impact of secondary perils will likely maintain discipline at the lower end of programs for the foreseeable future,” Aon says.