Reinsurers hold key risks at arm’s length, rendering uneven rate hikes - Howden
Reinsurers deployed abundant capital where the risks seemed right, but could do little else but hold loss-bearing risks at arm's length in the year-end renewal, sending rates up unevenly across lines, Howden said in its overview of the January 2022 renewals season.
"Reduced flows of capital into the sector in the lead up to renewal, along with rating agencies’ and regulators’ increasingly vocal interventions on the rising frequency and severity of catastrophe events, strengthened reinsurers’ resolve to hold ground on loss-affected business and demand higher returns," authors of the Howden report ‘Times are Changin' wrote.
"The result was a late property renewal, with rate changes typically up year-on-year and capacity down for lower-layers or aggregate products as reinsurers and retrocessionaires moved away from frequency covers," Howden wrote.
The upshot may have been a 15% increase in retrocession catastrophe XOL rates, a 9% gain in global property-catastrophe risk-adjusted rates but a mild 5% rate increase in the much more acceptable risk of casualty reinsurance on the London market, Howden said of its standardized price index calculations.
The 9% rate increase in property-catastrophe ran half again above the prior year's 6% growth rate and proved to be the biggest year on year increase since 2009, authors claimed. That puts the price index at levels last seen in 2014. The jump in loss levels for Europe vis-a-vis its recent reputation as a soft-spot proved an "inflating factor."
Casualty gained from reinsurer hesitance on those loss-bearing lines and capacity followed in a flood, drawing the growth rate down one point from the prior year's 6% tempo. "Ample capacity, fed by higher rates and improved profitability on original business, provided a more constructive backdrop for casualty reinsurance renewals," authors wrote. Strong competition trumped worries over inflation.
Retrocession suffered with capital trapped in ILS and providers leery after another year of major loss events. "Climate change and the attendant issue of catastrophe model efficacy were decisive factors this year, with the unusual mix of secondary events fuelling sentiment that changing weather patterns are now increasing both the frequency and severity of climate sensitive perils," authors claimed.
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
