As target areas for remediation ahead of 1 January renewals, while they also aim to bring into line pockets of Europe that have so far escaped severe hardening.
The mood at this year’s Baden-Baden reinsurance conference is considerably more amenable than in 2022, with an almost universal recognition that the step-change in property cat terms made last year was broadly sufficient.
However, reinsurers are turning their attention to other areas of concern.
As well as holding their line on property cat renewals, putting tighter limits on SRCC coverage is on the cards, while one topic of debate is how far social inflation may be influencing the European market.
Property cat: Defending gains
Reinsurance delegates at the annual Baden-Baden meeting were virtually unanimous that the 2024 property cat renewal will be about defending the gains made last year, with some adjustment for inflation, rather than swingeing change.
The vast majority of cedants last year faced large retention increases as well as rate rises.
This year, brokers and cedants will argue for cat programme renewals on a flat- to slightly up basis when adjusted for risk and inflation. Reinsurers, however, are pushing for increases ahead of inflation, with some aiming for rate rises in the low double digits.
Attempts to reduce attachment points following last year’s dramatic increases are absent from discussions, and reinsurers are determined to ensure that retentions rise in line with inflation where necessary. In some cases, cedants last year negotiated significant retention increases over two renewal cycles, with a further large jump to come at January 2024.
Loss activity in Italy and Slovenia has kept secondary perils such as hail and flood at the front of mind this year after also driving significant losses in recent years.
At this point last year, there was strong rhetoric from the largest reinsurers around the expected additional demand for capacity at the higher levels of programmes, driven by inflation as well as an increasingly bearish view of European cat risk.
But delayed renewals and the “sticker shock” factor of adjusting to higher rates led to few new purchases initially. This year, however, several cedants have returned to the market for additional top layers with some looking to buy in the region of EUR500mn-EUR600mn more.
Munich Re has forecast new cat demand will reach EUR5bn throughout 2024, including EUR2bn from Germany alone.
There is an expectation that, given the overall improvements in terms and structures achieved last year, capacity will be found to meet this need – particularly where cedants agree to switch some layers to a named-perils arrangement.
Some reinsurers that have additional capital at their disposal, such as Everest Re and RenRe – along with its new acquisition Validus Re – have clearly telegraphed growth ambitions in Europe, at the right terms.
Loss-hit outliers
Sources highlighted a handful of regions of Europe that escaped the worst of last year’s market hardening which face a much more difficult cat renewal for 2024.
Chief among these was Italy, which faced both a major flooding event and a meaningful hail event this year, producing a multi-billion Euro loss.
Italian insurers did not see the same increase to their retention levels last year, meaning that at least some of these major losses will be passed to reinsurers.
One factor in this insulation for Italian cedants was that traditionally, their programmes were designed and therefore priced for earthquake risk, rather than flood and hail.
Slovenian carriers Triglav and Sava also face a tough renewal season this year, having handed EUR200mn+ in flood losses to reinsurers.
SRCC sub-limits loom
A key concern now from reinsurers is ensuring that SRCC coverage in cat treaties has proper parameters around exposure as well as adequate pricing.
Reinsurer delegates at the conference complained that SRCC within cat treaties has so far rarely been properly priced, partly due to a now outdated view that it was only a real concern for emerging markets countries.
Civil unrest in France, which at last count sparked insured losses of EUR650mn, have put paid to that theory, sources said.
There is also concern around how social media can amplify protest and riot events across geographical borders, presenting problems when defining occurrences as a single event.
As a result, reinsurers are pushing to implement higher retentions on SRCC portions of cat treaties and impose lower sub-limits and tighter event definitions in a bid to put parameters around the exposure.
Property per-risk adjustments
Another key battleground at this renewal is property risk excess-of-loss (XoL) treaties, which several sources described as having been “troubled” for a number of years.
Here, the issue is that retention levels have not kept pace with inflation or loss trends, leaving the contracts exposed to ever-more frequent events, reinsurers are arguing.
Some elements of property risk treaties were adjusted last year, but this year reinsurers are pushing to lift retentions, push up rates and get to grips with cedants’ underlying line sizes.
Casualty treaty – is social inflation spreading?
Swiss Re used its pre-Baden press conference to put casualty treaty front and centre of its renewal messaging, arguing that while social inflation has so far been seen as a US phenomenon, there are also signs of it on the Continent.
This is evident, the reinsurer said, in the growing number of group legal redress cases in the past few years.
Not all reinsurers shared the view that social inflation is yet a major force in Europe, but some said the attitude towards the insurance industry generally is becoming less and less favourable, as evidenced by recent Covid BI legal rulings in France, the UK and Australia.
Should social inflation truly take hold in Europe, the impacts would mainly be felt in general liability and professional lines, sources said.
Cedants and brokers are countering this argument by highlighting the several consecutive years of price increases in underlying casualty books, which in pro-rata business has meant steady reinsurer appetite.
In XoL casualty treaty, however, there is a greater likelihood of structural change to programmes as well as price increases, as economic inflation takes its toll on loss trends, particularly in motor business.
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