Rachel Dalton and Adam McNestrie
...as early talk of holding out for high premiums morphed into last-minute pressure for the insert of pandemic exclusions.
Sources noted that cedants seemed to be getting their programmes done with very little over-placement, owing in part to arm-twisting from the brokers, as mid-March hopes of repricing or shortfall covers proved unrealistic.
Market leader Swiss Re was credited with helping to lead the campaign for rate rises this year, having called during Q1 for increases of between 50 and 80 percent.
Nevertheless, its willingness to accept the pricing has been a key factor in the ability of cedants to fully place treaties. Sources suggested that the other continental reinsurers, including as expected Munich Re, may also have used the opportunity to secure additional market share.
Bermuda in particular, and London also, are believed to have taken a more muscular stance. A number of players are understood to have pared back their exposures despite the biggest headline increases in a major cat market since 2011/12.
The Japanese cat renewals are a major frontier in reinsurers’ battle for rate rises this year following $30bn of typhoon losses in two years, which have also fundamentally changed the way in which the industry views the magnitude of that risk.
Some reinsurers said they had maintained their existing written lines because they judged that this was a sufficient one-year increase. They also believed that a further re-rating to reflect the changed view of risk was likely next year, given the "partnership approach" the Japanese cedants have shown in the past.
As Insurance Insider previously revealed, rate rises for Sompo, Mitsui Sumitomo Insurance and Aioi Nissay Dowa were broadly within the range of 45-55 percent for occurrence wind layers, while Tokio Marine is thought to have paid a meaningfully lower increase of around 35 percent.
Aggregate deals have been extremely difficult to place – with only two in the market – as sources pointed to 60-70 percent rate rises to secure capacity. However, both Sompo and MS&AD are thought to have completed their placements, with the former helped by having an element of two-year cover in place.
Covid-19
Renewal discussions this year have been marked by a robust stance from reinsurers, following an unprecedented $30bn in typhoon losses during 2018 and 2019, with most of those losses registered during the period since the last renewal.
Crucially, however, the rate rises achieved are believed to have reflected the market conditions that prevailed before Covid-19 became a worldwide pandemic.
With the renewals already well advanced by the time the scale of the mounting crisis became clear, reinsurers have largely run the renewal based on the "old rules", with an expectation that future renewals will price in the scale of the disruption.
The exception to this was a late push from reinsurers to limit go-forward exposure to coronavirus losses through the insertion of exclusions into cat treaties.
Sources noted that a variety of approaches have been taken to the Japanese treaties that renew on 1 April, with some treaty wordings amended to include a specific Covid-19 exclusion, and "letters of understanding" attached to others.
Reinsurers were understood to have been more concerned about the international exposures from these cedants, given the perceived low likelihood that a relatively non-litigious environment like Japan would have the relevant exclusions on property policies overturned.
Pushes for the insertion of a full exclusion for communicable disease are believed to have been met with more limited success.
As reported yesterday, there have been isolated incidences of reinsurers attempting to pull authorisation on lines due to clashes around last-minute attempts to add pandemic exclusions to cat treaties.
Sources pointed out that even when the discussions around 1 April renewals had not yielded exclusions, reinsurers had at least secured more clarity on cedants’ actions to mitigate risk from Covid-19.
Quake
Reinsurers’ hopes early in the renewal season for a spill-over of price increases from wind to quake covers have been disappointed, as cedants successfully argued against contagion from wind for the loss-free covers and achieved flat pricing.
Sources expressed disappointment as mutuals Zenkyoren and Saikyosairen completed renewals on flat terms.
Both also looked to buy more limit, with Zenk seeking to expand its open-market limit – assuming layers were 100 percent placed – to around 1.75tn yen ($16.4bn), as it continues a multi-year drive to increase limit purchased after its 565bn-yen tower was totalled by the 2011 Tohoku quake.
Rival Saikyosairen, meanwhile, looked to buy around 65bn yen in additional limit this year.
Having tested the market with flat firm-order terms, it is not clear to what extent Zenkyoren was forced to compromise through co-participations on its top layer, which is understood to be priced at below 2 percent rate on line.
Zenk is believed to use substantial co-participations through its programme, and is likely to have accepted whatever capacity it was able to secure at the initial terms, with the rest retained.
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