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Property reinsurance rates jumped sharply at Jan. 1 renewals, led upward by catastrophe coverage, where supply was short and reinsurers sought to tighten terms.
Coverage for strike, riot and civil commotion also fell under the microscope, due to global geopolitical concerns, and cyber reinsurance renewals were tough due to the sector’s rapid growth and differing strategies among primary insurers.
Casualty reinsurance markets were reasonably calm, most sources said, while the retrocessional reinsurance market was late to develop, complicating calculations for reinsurers.
The risk adjusted price change — which accounts for changes in underlying valuations — on property catastrophe business was generally between 40% and 60% higher in North America and closer to 25% to 35% in Europe, which was firmer than initially expected, said David Priebe, New York-based chairman of Guy Carpenter & Co. LLC. There were “outliers” above and below the ranges, he added.
Mr. Priebe said the availability of capacity was down, noting that several reinsurers made known earlier in 2022 their decisions to cut back or rebalance their portfolios for property catastrophe coverage.
2022 was another significant catastrophe loss year, led by Hurricane Ian, which caused between $50 billion and $65 billion in insured losses when it hit Florida in September, according to estimates from catastrophe modeling companies.
Insurers’ balance sheets have also shrunk as a result of declines in capital markets, forcing them to choose how they want to deploy capital, said New York-based Thomas Holzheu, chief economist, Americas, for Swiss Re Ltd.
Marcus Winter, Princeton, New Jersey-based president and CEO of Munich Re US, a unit of Munich Reinsurance Co., said property prices rose “well into the double-digit range” and in some cases increases reached 100%.
In its market report released last week, Gallagher Re, a unit of Arthur J. Gallagher & Co., said property reinsurance rate increases in the U.S. were between 45% and 100%, Europe saw mid- to high single-digit increases and the rest of the world was also in positive territory, mainly in the low and mid double digits. Spikes occurred in places such as Korea, where prices jumped 50% to 100%.
Reinsurers also pushed primary insurers to increase retentions, said London-based James Vickers, chairman international, reinsurance, at Gallagher Re.
Retentions in North America rose 20% to 50% as reinsurers sought to move up to higher coverage levels, those in the seven- to 10-year return period from a modeling perspective, Mr. Priebe said.
The return period, also known as a recurrence interval or repeat interval, is an average time or an estimated average time between the occurrence of events such as earthquakes, floods, landslides or river discharge flows.
Negotiations also focused on policy language and conditions, with reinsurers pushing for coverage based on named perils rather than all-risk coverage, particularly in North America, said Bermuda-based Christian Dunleavy, group chief underwriting officer for Aspen Re, a unit of Aspen Insurance Holdings Ltd. Other sources also noted the move to named perils.
The Gallagher Re report said Russia’s invasion of Ukraine led to hardening in the political violence and terrorism market and sources agreed that contract tightening and language clarity were key topics.
Strike, riot and civil commotion coverage has been “a historic problem,” particularly in the emerging markets, Mr. Vickers said. “What was worrying people was that there might be an increase in civil commotion amidst high levels of unemployment, inflation and its effect on food prices. Against that environment, underwriters are concerned.”
Reinsurers were managing aggregations from the peril of strike, riot and civil commotion against a backdrop of “increased social discord seemingly prevalent in the U.S. and other developed countries,” Mr. Priebe said.
Strike, riot and civil commotion is a difficult exposure to model, making it hard to quantify, sources said.
Another peril difficult to model and quantify is cyber, sources said.
“There is a cap on how much reinsurers are prepared to write as it over-weights their portfolio,” Mr. Vickers said. “The capacity issue is really about absorbing the increasing premium volumes” generated by primary insurers as they expand into the sector.
Munich Re’s Mr. Winter also noted the emerging nature of cyber coverage and its effects on reinsurance demand. “Demand is growing for primary, but they differ on strategy, some buying more coverage while others retained more risk,” he said.
Casualty markets escaped the tumult faced by property renewals.
“Big chunks of the market were relatively calm, particularly casualty and the (auto liability) business, because the primary underwriters have done a lot of the heavy lifting,” Mr. Vickers said.
The Gallagher Re report showed casualty reinsurance rate movements in the U.S flat to up 15% for professional liability, increases of 10% to 30% for health care liability, and increases of 5% to 15% for general liability. The rest of the world showed increases mainly in the low to mid-double digits.
Mr. Priebe described casualty renewals as “orderly,” due to “material improvement” in pricing and control of limits in the primary market.
Complicating renewals for reinsurers was a late developing retrocessional market — where reinsurers buy their own coverage — partially due to Hurricane Ian, which led to concerns over an extended claims process and the potential for capital to be held against potential losses in the collateralized reinsurance and insurance-linked securities sector.
“Following Ian, funds were intensely trying to establish loss levels and trapped quantum,” said Kathy McCann, Boston-based senior broker for Lockton Re, a unit of Lockton Cos. LLC.
The retrocessional market was the “most acutely challenged” and latest to come together, Mr. Priebe said. He added, however, that most cedents achieved the cover they required, “albeit, like primary catastrophe, at materially higher retention points.”
Mr. Vickers said there is “a growing view initial losses were overestimated” for Hurricane Ian, and investors in the collateralized reinsurance and insurance-linked securities markets that underpin retrocessional markets “were more comfortable their Ian losses will not be as anticipated,” potentially making them more willing to leave capital in the sector or even allocate more.
“Given significant changes in the market at 1/1, investor confidence will likely be restored, and capital from various sources will come into the space,” Ms. McCann said.