The real work begins
Another benign loss year coupled with the recent wave of merger and acquisition (M&A) activity will create a tense and challenging renewal for some players.
As cedants retain more and competition increases in the reinsurance space, clients will continue to seek improved terms and bespoke offerings from their reinsurers, but tensions may rise as reinsurers near their technical minimums.
“Following another benign loss year, clients will continue to seek improved terms, yet reinsurers are beginning to get near to technical minimums, which may not always allow enough scope for firm orders to be won easily,” says Nick Frankland, CEO, EMEA, Guy Carpenter.
“Instead structural changes will continue to be the order of the day as class and layer combinations provide greater opportunities for discounted or re-evaluated pricing.”
Frankland says that blended, multi-class programmes along with multi-year periods at selected attachment points will also continue to rise, while increased buying of aggregate cover to soak up increased frequency of larger losses occurring inside higher retentions is likely.
“In the round, we expect modest pricing and coverage enhancements to be achieved on a client-by-client basis,” he says.
In addition, Frankland explains, the flurry of M&A activity could drive an “intense battle” between reinsurers as newly created duos and existing players struggle to find their place amid a changing market.
“We envisage quite an intense battle over reinsurer signings as the year’s M&A activity begins to play out,” he says.
“On one side there are the newly acquired or combined groups that are keen to retain or even expand their positions, and on the other are the numerous existing markets wanting to protect and/or increase their positions—all vying for their shares of a still shrinking pot of overall ceded premium.”
However, Frankland explains that such a “dramatic tension” should work to clients’ benefit as they try to find the greatest value available and construct the best possible panels.
