The renewals are running so late that early colour on pricing was limited, as there were fewer data points available – and in any case a rate change benchmark is only one limited lens on the shifting trends at work.
So while we can’t forecast how rates will settle, what can we see as some of the trends that may emerge and prevail as the fog clears after 1 January, and the potential openings for advantage for certain carriers? We have three observations.
1. It seems now most likely that the renewal is only going to get harder as time goes on, inverting last year’s pattern of last-minute softening.
In general, reinsurers were growing more optimistic that 1 January would bring them something approaching the rate change they were after, versus more lacklustre expectations a month or two ago. Even so, the pace of change that was being discussed at this stage was fairly moderate – with the larger growth figures coming off very low bases.
So this is far from being hard market territory, but the pacing of the renewal looks to favour ongoing increases rather than a final collapse. With many major reinsurance carriers undertaking significant and well-signalled cuts to their portfolio, the offset from new carriers or those with more room to grow seems unlikely to compensate in full. The backdrop of noise over climate change and attritional losses means that cat underwriters are desperate to get a good year on their books.
2. Panel turnover will rise – but how much will cedants value relationships?
One comment that often seemed to be re-echoed in many conversations was that reinsurers now feel they have more choice – that simply dropping off some programmes is a much more realistic option than it has been in the past, as top-down directives have come to cut aggregate exposure.
So panel turnover is likely to be a more common feature, particularly for the cedants who have delivered repeated losses and for whom reinsurers said it was “not a question of price” in supporting them if structures did not change, or if the reinsurers could hit their targets elsewhere.
This suggests the 2022 renewals will give a leg up to the class of 2020 start-ups as they build out – but other carriers suggested that we could also see an increase in differential terms if cedants ultimately decide to try to retain historic trading relationships.
Another senior underwriter suggested that reinsurers will begin trading on “product not price,” with catastrophe business moving to become the side deals done by reinsurers in order to access specialty or casualty primary business, in the inverse of prior trends.
So it is hard to signal who this leaves as a winner or loser – the carrier that trims exposure even as deals reprice? Or the newer growth markets? Both are extracting what they want out of the market, and only the pace of gains and the dent of prior losses will determine who really wins or loses.
3. Retro conditions could have a knock-on impact throughout next year.
With retro capacity in tight demand, particularly for earnings coverage from quota share or aggregates, the reinsurers that are less reliant on retro cover are clearly going to be at an advantage this year.
This could give even more leverage to Munich Re and Swiss Re than is usually the case in the European-centric 1 January renewals.
But some suggested that the retro rate hikes, and evaporation of low-hanging aggregates, will take time to show its full impact. US Gulf wind drives most exposure within retro programmes, and a lot of that type of business is not up for renewal until later in 2022.
On top of that, reinsurers will have made educated guesses but they do not yet know what outward protection they will have in place and how they might want to reshape their tactics accordingly.
With a longer-term view, all of the trends that are playing out in the run-up to the January renewals will also come to the fore in the mid-year US renewals – but be felt even more acutely.
The regional renewals present instances of buyers both desperate for capacity and with terrible track records – so however many days and weeks into January this tension lingers, it will only be a soft marker of how June 2022 could unfold.
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