After the gap between inwards and outwards coverage narrowed, however, key market players canvassed by this publication said there is still a distance to go on controlling exposures and reshaping reinsurance.
Following last year’s tricky 1 January renewal, in which reinsurers tightened coverage, rates increased and insurers ran far more of their risk net than they had previously, this year’s January renewal was not looking promising.
However, it appears that, despite some prophecies that there would be “absolute carnage,” the renewal was a fairly smooth affair.
Senior market sources said that many carriers were able to get their reinsurance over the line readily, with one remarking it “seemed quite mellow” compared to previous years. This can be attributed to reinsurers not following through on feared restrictions. The ongoing availability of coverage for Israeli exposure from some reinsurers was a win for PV carriers, compared to Ukraine exclusions.
Before 1 January, one senior market source told this publication that it felt as if they were in a “Mexican standoff” with reinsurers; but post-1 January, it felt as if the reinsurers didn’t go as hard as they had threatened – “it was as if they fired their gun and a funny flag popped out.”
Despite this, PV reinsurance rates rose once more – although not as sharply as previous renewals. Gallagher Re put loss-free rates up 5%-10% and loss-hit business flat to 15% up in its 1st View report, compared to 30%-50% hikes in 2023.
But reinsurance structures, and insurers’ net exposures – in light of a Lloyd’s review of the segment – are still in focus, as PV writers get to grips with a fast-evolving risk environment that has changed expectations of the product.
Reinsurance coverage adaptations
On top of increased costs in the past two years, tighter terms have opened coverage gaps, as reinsurers introduced much more restricted geographical coverages.
The need to address and narrow these gaps prompted a shift towards use of quota share reinsurance, as broker reports identified. But cedants are still looking for other solutions.
This publication has previously noted how market participants have become increasingly despondent over the growing coverage restrictions.
Ahead of 1 January, one senior market source said: “If we exclude a region every time there is a war, then what is the point of PV or SRCC coverage?”
In Howden’s recent market report, the broker said that loss experience continued to constrain PV reinsurer appetites.
“Risk appetite in the standalone market – still reeling from the unprecedented rise in SRCC losses, as well as the Ukraine war and now the outbreak of war in the Middle East – has also reduced significantly in hotspot areas.”
But this is leading to questions over whether terrorism treaty products are fit for purpose in today’s threat environment, the Howden report went on.
With terror coverage designed to provide large vertical limits, in response to the post-9/11 market, instead of sideways cover, Howden said: “The need for new products that reflect the shifting threat spectrum has never been greater.”
This comes as the PV market has been hit by many minor-level losses in the past few years, alongside major events such as the Ukraine war: like riots in France, the US and South Africa.
On top of structure, there is also a constraint in matching total exposures. One market source said they still think there is a “chasm” between insurance and reinsurance coverage in the PV market. “There is absolutely no way that there is $10bn of backing for the $10bn+ of exposure in Israel,” they said, as an example.
One particular area of interest for many is how the market has been allowed to grow more than $10bn worth of exposure in Israel, a country with a long history of political conflict.
Questions were raised over the build-up of aggregations in the market and if carriers will be ready to handle the exposures it is building up. The more sceptical among market sources think not.
These are some of the questions that Lloyd’s will undoubtedly be levying in its review of the PV segment. Last year, chief of markets Patrick Tiernan said Lloyd's would look to ensure syndicates are taking a more forward-looking view of risks in these classes, “rather than a backward analysis of what we've seen before”.
Entries outweigh exits despite pressures
For years, the PVT market has discussed the potential for a mass exodus of insurers from the market that never seems to materialise.
But opinions are diverging, as recent history shows there have been more market entrants this year than there have been exits.
This year, Everest will launch into the PVT market, hiring Kit Welsh from Axis to lead the buildout in the class.
And, while not technically a new market entrant, MGA Optio re-entered the PVT market after it secured new underwriting capacity from AmFirst Specialty after initially losing its paper when Chaucer and Market pulled their backing.
Conversely, this publication also revealed that CNA Hardy pulled out of the market, a move largely attributed to sharply rising reinsurance costs and losses.
Even in 2022, when the market was even more deeply misaligned, there was only one market exit.
In May 2022, WRB Underwriting was forced to exit the PV and political risk markets due to being unable to secure reinsurance at its 1 April composite treaty renewal.
The proliferation of insurer supply is no doubt one reason why insurance change has been slow to match the reinsurance pace.
But given that of the top 10 risks ranked by the World Economic Forum in its Global Risks Report, more than half can be seen as closely tied into PV risks – from misinformation to social polarisation to lack of economic opportunities – there is no doubt that pressure remains on the segment to improve its underwriting controls.
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