For buyers, terms and conditions have overall been less onerous than initially feared again revealing the efficient working of the global reinsurance market, according to the latest 1st View renewals report from Willis Re.
Improving investment markets, retained earnings and newly raised capital helped global reinsurance capital levels to recover rapidly during 2020, ending the year 3% higher than at year-end 2019.
Buyers seeking reinsurance for short-tail portfolios with poor loss records found the renewal demanding, as reinsurers proved reluctant to support aggregate and working layer covers, but appetite for higher, loss-free layers was greater.
In casualty lines, negotiations of pro-rata treaties were more buyer friendly as a result of underlying rates increasing consistently and significantly. In some cases buyers balanced demands for reductions in ceding commissions by opting to increase net retentions of risks that they now believe are adequately priced. Incumbent reinsurers faced competition from carriers deploying fresh capital, but the continuing and worsening low-interest-rate environment and social inflation impacted pricing on all excess of loss long-tail lines.
Property retrocession capacity remained limited, but not to the extent many expected, particularly as some ILS funds increased their assets under management, traditional reinsurers offered new or additional limit, and some buyers sought to acquire less cover. Aggregate capacity however was more constrained than occurrence, which led some buyers to respond with increased issuance of catastrophe bonds.
Emerging COVID-19 losses, often advised only late in the renewal process or yet to be advised, triggered technical discussions of primary policy coverage and reinsurance treaty wordings. Both remain in the early stages of deliberation, so, sensibly, most programmes renewed without conclusion of potential COVID-19 losses, leaving time for more measured discussions and subsequent adjustments. In the interim, reinsurers have been unwilling, with few exceptions, to accept ongoing contagious disease exposures.
James Kent, Global CEO of Willis Re, said: “2020 brought vast economic and social disruption to many parts of society. It is important to recognise our fortune as being part of an industry that continues to grow in relevance, and which has the potential to adapt to meet such challenges. This was reflected during the renewals process, as the resilience of the reinsurance sector shone through, not just to losses, but to working challenges. Once again, the dynamics of the sector have proved robust on all fronts.”
Download the full report: The Willis Re 1st View report is a thrice-yearly publication including specific commentary on key trends throughout the world’s major reinsurance classes and regions.
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