But throughout this period rates in first-tier reinsurance have remained broadly flat, with gains either coming via rising original rates benefiting proportional reinsurers or through targeted increases (Japanese wind, Florida, specific underperforming clients etc).
Gains elsewhere have been modest and incremental despite three years of loss-making or near-loss-making underwriting.
For much of the last year reinsurers have also argued that the so-called U-shaped pricing phenomenon – where primary and retro pricing outpace reinsurance – is set to flatten, with little evidence that this was happening almost 12 months after primary rates hit an inflection point.
As such, reinsurers’ public rhetoric that the market is turning – or even getting hard – deserves to be treated with extreme caution.
Nevertheless, in this case the rhetoric does reflect a real and appreciable shift in market dynamics that has become apparent over the last three to four weeks.
Conversations with a range of market sources across the underwriting-broking divide confirm that on reinsurance pricing all boats are being lifted by the rising tide within the US market, with international pricing lagging somewhat. (Although outside the US even some of the most diversifying of marketplaces in Australia and New Zealand are finally showing signs of transition.)
Multiple sources told this publication that across almost all lines US renewals are set to rise by at least 10 percent, with loss-free non-Florida clients renewing cat treaties set to be hit with increases in the 10-15 percent range at 1 June. General casualty and professional lines renewals are also comfortably in double-digit territory, although pre-existing dynamics may still be the primary driver of the rises.
There are also signs of long-awaited movement on ceding commissions, although these are less dramatic than on excess-of-loss deals.
Crucially, it also seems increasingly clear that reinsurers are in the early stages of securing the triple crown of underwriting: (a) increased rates, (b) improved T&Cs, and (c) increased demand.
Right now the evidence is anecdotal and incomplete, with the 1 June renewal in progress. And some of the perspectives on the renewal are coloured by a red-hot Florida market stressed by de-risking, ILS caution and eye-wateringly expensive retro that is pushing rates up 30 percent-plus.
But the turn seems to be real and the momentum appears to be growing.
The size and shape of the market loss from Covid-19 remains highly unclear, with the loss range still hugely uncertain at a macro level, and the picture increasingly uncertain as you move through geography, line of business, link in the value chain, or specific insured.
But the re-emergence of fear is clear, as is an increasing reluctance to take on volatility – much of which is driven by Florida and broader US wind exposures.
Reinsurance industry executives are concerned about their bonuses and ultimately their jobs, and the pressure on underwriters to secure meaningful rate rises and tighter T&Cs is intense.
Amongst the clearest evidence for this sentiment shift is the surge in enquiries for retro ahead of 1 June. Sister title Trading Risk reported that industry loss warranty (ILW) pricing had spiked by 10-15 percent since 1 January, with expectations mounting that purchased limit this year could climb by a quarter to $5bn-$6bn.
The flight to the ILW market largely reflects the unavailability of ultimate net loss retro.
Most sources expect late 1 June renewals to pay more than early movers, and anticipate further sequential hardening at 1 July, with bold RenRe-style rhetoric relatively common behind closed doors, and an increasing focus from brokers on managing client expectations.
Just over a month ago, we sketched out the challenge of seeing the path forward in reinsurance as dynamics that tended towards hardening collided with reduced cedant ability to pay, based on less money coming into the system.
There we talked about surge, fail and lag scenarios. We are still in the very early stages of seeing the market digest the loss, but the case for a surge in risk-adjusted rates has strengthened.
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