While a small number of programs are understood to have progressed to FOTs these are believed to be exceptions that are few and far between, providing limited read-across for the treaty market.
Despite public statements from a number carriers in recent weeks that they were open for business – including Hannover Re at Baden-Baden – the anticipated post-conference wave of quotes has failed to materialise.
Broking sources have spoken to this publication of their growing frustration as reinsurers continue to hold back on quotes, as they seek clarity for clients on both pricing and to what extent programs will need to be restructured given the lack of capacity in the market for property cat risks.
Changes to coverage within programs was of particular concern for brokers and cedants canvassed by this publication.
With the market “frozen” and a dearth of quotes, senior brokers are believed to have picked up the phone to reinsurer CEOs imploring them to encourage their underwriters to issue quotes, seemingly to little effect.
Of the quotes that have been issued, it is understood that many underwriters are adding short time limits which are making it difficult for brokers to get a true sense of pricing as well as coverage terms across a program before quotes expire.
“Most of the reinsurance market seems unable or unwilling to offer quotes – it’s a mess,” one said.
One treaty source told this publication that the stand-off in the market was driven by lead markets, with many smaller to mid-size reinsurers holding back on issuing quotes until leaders did so.
“We’re not a true lead market so we’re stuck playing wait and see,” they told this publication.
“The question is who’s going to step up and lead and actually start offering quotes.”
Sources have also spoken of the expectation that it will take several attempts to get programs over the line, with FOTs potentially being reissued multiple times.
One broker told this publication that they anticipate cedants being forced to concede ground on terms and conditions and structure just to get things moving.
Battle grounds are understood to be emerging over reinstatement premiums as well, with emphasis being placed on named perils and certain risks being excluded.
With a long way to go for many placements there is a growing sense that not all programs will get placed by 1 January. This is especially true for North American cedants but is also a growing concern among European buyers.
As capacity at the macro level is expected to be less constrained on continental European programs than for North American buyers, there is expected to be more of an orderly process.
However, some markets within Europe will face a significantly more challenging environment based on recent loss activity.
Reinsurance buyers in Germany, Austria, Belgium and Switzerland – which bore the brunt of the >$12bn+ Bernd flood losses last year – are expected to come under pressure again, after witnessing some of the steepest rate rises at 1 January 2022.
Cedants in France are also gearing up for a tough renewal after delivering a €6bn+ industry loss bill from hail storms in the country in the second quarter.
One practitioner canvassed by this publication drew parallels between the current market dynamics and the run-up to 1 January 1993 renewals post Hurricane Andrew.
“Then only 40 or 50 percent of programs were placed,” one source said. “It won’t be to the same degree but it will be significant.”
There is a growing acceptance in the market that the renewal will run late (and with shortfalls) but many question how far into the new year.
“Optimistically we’ll be done by mid-Jan, but it’ll likely run into February,” one source said.
No new capacity on horizon
As this publication has tracked, pre-Ian the expectation was that at least $20bn of additional US cat capacity would have to be found to satisfy increased demand from insurers, largely driven by the impact of inflation on their exposure base and premium volume.
At that time there were already major concerns that capacity available to support that increased demand would be limited, amid reinsurer retrenchment, currency movements and the impact on balance sheets of investment write downs.
With the situation further exacerbated by Ian, other solutions are being explored.
But North American property cat facilities and other potential solutions being worked on by Guy Carpenter, Aon and Gallagher Re aimed at addressing the gap between growing demand and shrinking supply have thus far failed to gain much traction.
“People are interested but they’re not going to be doing anything until there’s some facts around pricing and what the coverage is and what the return expectation will be there.”
While efforts are thought to be ongoing there is a sense that even if initiatives from the reinsurance brokers come to fruition, any new capacity generated will be relatively modest and will not meaningfully alter dynamics at the upcoming renewal.
The third quarter reporting season has brought some clarity as to what approach individual carriers would be taking at 1 January – with the market seemingly divided.
Among major cat players RenaissanceRe has publicly stated it will shift its portfolio to take advantage of the greater opportunities it expects in property cat reinsurance at 1 January, with the carrier outlining the steps it will take to ensure investors are “appropriately incentivised” to continue providing capital to support the risk.
President and CEO Kevin O’Donnell said there was a need for a “step change in the pricing and structuring of reinsurance coverage to ensure the additional margin and safety of our investors”.
Alongside rate hikes this step change also includes increased retentions on property programs, tightening terms and conditions and narrowing coverage in most instances to named peril only.
It would also see non-concurrent capacity and private placements on many deals and require broad participation at improved economics across reinsurance programs, not only in property but also casualty and specialty.
While RenRe has signalled its appetite to grow its cat book, others such as Scor have said they will contract.
The Paris-based reinsurer said it would be more selective as to where it deploys its property catastrophe capacity as it wanted its cat capacity to protect the capital of its clients rather than earnings.
Others were reluctant to comment publicly about their appetite but nearly all carriers have stressed the need for pricing increases.
Retro crunch
The outlook for retro renewals remains even murkier than in property cat reinsurance, with uncertainty in retro feeding down the value chain.
The days of plentiful aggregate capacity – fuelled by low layer/pillared retro cover from the likes of CatCo – are long gone.
As this publication has reported, retro capacity will be in short supply and increasingly focused on named perils following another year of trapped capital among ILS funds. This will make it all the more difficult for smaller reinsurers and ILS funds to provide all risks reinsurance cover.
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