The January reinsurance renewals have been described by brokers and primary insurers as frustrating, grueling and very late, with words such as tense, seismic change, and dislocation being bandied about.
As the dust settles on the latest reinsurance renewal season, experts are observing the impact on multinationals and risk managers?
Questions like whether or not it will prolong the hard market, or at least stop dead in the tracks any moves to a softer market, or whether its effects will only be seen in certain areas, such as property?
According to Global Risk Manager, these are not encouraging words for a primary market that has recently seen some small signs of the slowing of a hard market that has been around for some years.
There is however fear whether the difficult reinsurance renewal faced by the primary market mean that the moderation being talked about in pricing will be nipped in the bud.
The effect of the renewal is that primary insurers are carrying more risks, said Chairman, international, Gallagher Re, James Vickers,
He stated that they have increased their retentions on their property catastrophe and per-risk reinsurance programmes, which are also now more expensive.
He said these changes would impact the volatility of their results and the cost of the capacity that they deploy.
He said: “What this means for multinationals and risk managers is that insurers will be seeking to achieve risk-adjusted rate increases above the underlying rates of inflation and will look to their policyholders to increase their deductibles. The cost of capacity for large limits will increase even if the layers are loss free. and particular attention will be paid to coverage.
“At the same time, non-damage business interruption and so-called secondary perils like flood, wildfire, snowstorm, and severe convective storms, as well as strikes, riots and civil commotion) will be under scrutiny”, he explained.
Aon’s Chief Broking Officer, EMEA, Terence Williams, said the renewal was strained, with quoting delays, tightening of capacity and rate increases, especially for nat cat-exposed risks.
“The impact will be felt across the entire property market. Nat cat-exposed risks and those programmes with significant losses will be most affected, but reinsurance pricing increases are driven by a multitude of factors, including underwhelming returns, above-average cat losses, inflation, FX movements and climate change, to name but a few. We should also not focus only on the pricing increases, but also on the impact of coverage restrictions, and how these are going to impact clients,” he noted.
Vickers said he believes price increases, even for loss-free property accounts, will filter down to the primary markets in all territories, but to differing degrees, with US natural catastrophe risk seeing the greatest pricing-increase pressure followed by Europe and then Latin America and Asia.
“Aside from natural catastrophe risks, what buyers in all territories have to recognise is that the ‘pure fire’ results for commercial and industrial risks have been universally poor for primary insurers with no regional/territorial variation. Primary insurers will be looking to address this through their standard fire rates and deductibles.”