Retro pinch pushes 1.1 reinsurance renewals to 37% rate on line gain
The January 1 renewals brought the largest year on year increase in rates for global property catastrophe since 1992 at 37%, with “highly stressed” renewals in the US pushing well beyond that pace, global broker Howden said in a summary report for 2022.
Retrocession risk-adjusted rate-on-line for catastrophe XoL rose by 50% on average, in a range from 20% to 90%, Howden said of what they called a “highly challenged and complex” renewal round. Reinsurers rejigged attachment points and layers and still hit double digit gains for higher layers. That problem got kicked down the line.
“Late or incomplete retrocession placements meant that property-catastrophe reinsurers had less clarity than usual around their net positions when offering renewal lines at 1 January 2023,” authors noted.
In Europe, Howden saw a 30% increase in rate on line for property, with “significantly higher” increases reported for loss-bearing accounts.
“Strong demand for additional limits to counter inflation, combined with some retrenchment from incumbent reinsurers, created a challenging environment for buyers,” authors wrote.
“That often resulted in higher attachment points, more stringent terms, paid reinstatements and substantial rate increases.”
Despite a long season of running doubts, capacity did rise to the occasion, “sufficient to see most deals over the line,” particularly for cedants showing strong performance.
US renewals proved “even more challenged” with an average rate-on-line increase of 50% on a market initially headed for major rate gain after a history of cat losses, capacity shrinkage and rising inflation, then shocked late-season by Hurricane Ian. The upshot: the biggest rise in rate-on-line since 2006.
Capacity proved less forgiving than in Europe. “Some buyers failed to fill their programmes,” Howden noted. Those cedants responded with moves into shortfall covers or by dropping all-peril in favour of tighter named-peril coverage.
And not everyone got the additional limit that inflation had suggested. “Demand from some larger cedents for more top-end coverage to counter high inflation dissipated somewhat as escalating pricing and tightening terms challenged the economics of additional limit.”
Across the industry, direct reinsurance and facultative was leveraged to plug gaps, but also at a cost. Howden calculates global direct and facultative rate rose by 45%.
Lingering gaps could press the demand-side well into 2023.
“Given capacity constraints, several reinsurers prioritised existing renewals despite significant submission inflows. This, along with gaps in some programmes, is likely to see continued purchasing activity leading up to this year’s North Atlantic hurricane season.”
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