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Property/casualty reinsurance renewal rates at Jan. 1, 2021, were lower than expected, as reinsurers raised capital in 2020, bolstering cedents’ negotiating power and blunting rate hikes, according to a report by S&P Global Ratings Inc. released Friday.
Reinsurers tightened terms and conditions during renewals, with communicable disease and silent cyber exclusions getting increased focus.
Reinsurance pricing is trending higher and has been increasing over the past two years, but the year-end increases, were “lower than what reinsurers had hoped for,” the report said.
The U.S saw the largest increases, with catastrophe-hit accounts seeing increases of 10% to 25%, while noncat exposed accounts without losses were flat to up 15%, S&P data showed.
In the U.K, accounts with losses saw 5% to 15% rate hikes and Europe-wide loss-hit accounts were up 5% to 10%. Some loss-free accounts were up minimally in the U.K and flat in Continental Europe.
Increases were limited in part by the $15.4 billion of new equity raised by reinsurers, along with $8.2 billion in debt, according to S&P, citing figures from Aon PLC. “This proved to be a negotiating advantage for reinsurance buyers,” S&P said.
Policy language garnered as much or more attention as rates, the report said. Communicable disease exclusions were broadly accepted on short-tail lines, but “were relatively less accepted” with long-tail lines.
Retrocessional reinsurance capacity was bolstered by capacity from insurance-linked securities.
“Despite significant rate increases and overall constrained capacity, buyers were able to purchase protection through record issuance of catastrophe bonds and from certain traditional reinsurers who were willing to provide coverage because of improving pricing,” the report said.