3 April 2023Analysis

Gallagher Re: April renewals were challenging

Reinsurance buyers were unable to avoid the variable but universal price corrections driving rates up at the 1 April renewals, according to the latest 1st View renewals report from Gallagher Re.

According to the broker the renewal was ‘challenging’, with buyers facing similar discipline from the reinsurers to that seen at 1 January. In some cases, particularly within smaller markets that had escaped previous rate hikes, significant structural changes were imposed by reinsurers. These dramatic adjustments may have impacted ceding insurers’ financials profoundly.

“No particular geography was immune from the price corrections that reinsurers maintained throughout the 1 April set of renewals,” said James Kent, global chief executive of Gallagher Re. “We saw an enhanced pricing impact based on individual client’s performance and their reinsurer relationships, but even the most favoured clients paid more, with reinsurer discipline being evident across the market.

“Capacity was adequate to get cedants’ exposures covered, but April renewals are an inappropriate yardstick for the market’s overall supply-demand relationship as it is so heavily weighted towards Japanese exposures, which are significantly lower than the peak US exposures. But we certainly didn’t see any meaningful new capacity, or any other indication that reinsurers are prepared to cede their hard-won pricing territory any time soon. The combination of catastrophe losses and mark to market investment losses in 2022 means reinsurers will continue to coax the market towards rates which will help returns exceed the cost of capital.”

Gallagher Re said that the market has faced similar discipline to that seen at January 1, although with a more intense focus on pricing and contract improvements across all territories and to all business lines.

In addition, capital remains constrained with limited signs of new capacity entering the market and existing reinsurers facing mark-to-market investment losses.

In Japan, long term reinsurer relationships, aided by improvements in primary underwriting, led to a better alignment of client and reinsurer expectation.

The supply/demand dynamic was finely balanced but overall buyers managed to secure sufficient capacity.

Similar to January 1, the casualty treaty market remained calm and logical, though continued concern regarding US ‘nuclear’ award verdicts are increasingly coming to light on US casualty placements, including some treaties with incidental US exposures.

And finally Gallagher Re said that ILS issuance is picking up due to capital constraints in the traditional market, although at higher pricing than traditional indemnity pricing.