Reinsurers raise rates across the board

Rates rose broadly at Jan. 1 reinsurance renewals, with increases largely in the low double-digit and high single-digit percentages, according to market sources.

The U.S. saw the largest increases, followed by Europe and Asia, and reinsurers pressed for more wording changes, which ultimately took more time.

“Everything is up – that hasn’t happened in a long time,” said David Flandro, managing director in London for Hyperion X Ltd., part of Howden Broking Group Ltd.

Driving the increases, Mr. Flandro said, are rising primary pricing, low interest rates, and increased risk concerns, some around COVID-19 but also around catastrophes, including wildfire, hurricane and derecho. On the liability side, litigation costs, including higher verdicts, are causing pressure.

Industry losses also played a role, sources say. Eighteen major reinsurers reported a net combined ratio across the group of 102.9%, for the nine months ended Sept. 30, 2020, Aon PLC said in its reinsurance market outlook released Monday, with losses relating to COVID-19 and natural catastrophe events contributing 7.9 and 4.7 percentage points, respectively.

“This was another year of price increases. I think it’s notable they’re getting rate on rate,” said J. Paul Newsome Jr., Chicago-based managing director at investment brokerage Piper Sandler Cos., referring to the fact that Jan. 1 renewals are showing increases two years in a row, although this year’s hikes were larger.

In property reinsurance, loss-hit portfolios with catastrophe exposures in the U.S. saw the greatest increases, ranging from 10% to 25%, according to data released last week by Willis Re, the reinsurance business of Willis Towers Watson PLC. Noncatastrophe exposed portfolios with losses saw rates climb 5% to 20%. Catastrophe exposed loss-free risks saw increases of 5% to 15%, while loss free noncatastrophe risks renewed flat to up 15%, the data showed.

Europe, the Middle East and Africa, and Asia-Pacific regions saw low-single-digit percentage increases, according to the Willis Re report.

“Property pricing outcomes varied by company as reinsurers differentiated companies based upon their recent loss experience and changes in ceded exposure,” said John Trace, New York-based CEO North America, Guy Carpenter & Co. LLC.

Terms and conditions and policy language were a “big focus” during this year’s renewals, Mr. Flandro of HX said. Reinsurers pushed for exclusions on pandemic and communicable diseases as well as silent cyber exposures.

“In addition to rate and structure considerations, contract wording discussions were a significant component of negotiations. Communicable disease and cyber exclusions were two of the more prevalent topics,” Mr. Trace said.  

Insurers at Lloyd’s of London required property treaties to include either exclusions or specific affirmations for silent cyber, Mr. Flandro said, adding that Lloyd’s can set the standard with contract wording for other renewals.

“Wording and underwriting have been tightening in general,” said Carlos Wong-Fupuy, senior director, global reinsurance ratings, at A.M. Best Co. Inc. Reinsurers are trying to understand all the risks to which they are exposed, and they are trying to make the risks more well-defined and able to be modelled.

Exclusions for acts by government officials are being sought by reinsurers, Mr. Wong-Fupuy said.

The pandemic has also prompted exclusions.

“Everybody knew going into the renewals that they were going to have to re-word contracts to make them even more clear,” Mr. Flandro said. “It’s a longer process than if you have contract wording which does not beg much or any discussion because it’s been in place for many years.”

“Much discussion centered on contract language, most notably for communicable disease language as the market worked to determine the exposure to individual placements,” Aon said in its reinsurance market outlook.

“The ability to find agreeable terms and conditions, especially for pandemic-related exclusions in property and liability contracts, was front and center and one reason why renewals started early and finished late,” Mr. Flandro said.

In addition, this year’s reinsurance renewals were quite different in terms of process due to the pandemic.

“Obviously, the process of reinsurance purchasing changes,” Mr. Newsome said. “There’s a lot of tradition involved in reinsurance with (meetings in) Monte Carlo and Baden Baden, with the conferences and the meetings and the dinners out. That obviously didn’t happen because of the pandemic.”