Swiss Re’s Ningen: More orderly cat renewal awaits amid focus on rate and concurrency

US-based cedants heading to the 1 January property catastrophe renewals can expect more orderly discussions with fewer capacity concerns than at the start of 2023, but upwards pricing pressure remains with non-concurrency issues also expected to be a talking point, according to Swiss Re’s Monica Ningen.

In the lead-up to the 1 January 2023 renewals, Ningen, who was appointed Swiss Re’s CEO of US P&C reinsurance in July this year, said “there was quite a bit of distress in the market around available capacity”.

That distress was caused by reinsurers pulling back their capacity in response to consecutive years of heavy losses, and a market-wide rethink on catastrophe exposure.

As the industry moves towards the 1 January 2024 renewals though, Ningen said those capacity concerns “seem to have worked through”.

“There are less concerns about capacity, but what remains is a discipline in the market for capacity being made available for the right price,” she said.

While this year there have not been any catastrophe losses of the magnitude of 2022’s Hurricane Ian, Ningen noted “we're continuing to see events happen, and we're continuing to see the cost of events go up because of inflation”.

Consequently, while Ningen said “the property market made a big push towards getting to where it needs to be last year”, she believes “it’s not quite there yet”.

“Reinsurance cat programs are not unscathed, but they’ve performed much better than they have in historical years,” she said.

“It takes more than a year to undo all of what we saw the last five, six or seven years before that.”

Ningen added: “I anticipate that we'll continue to see price momentum within the [property catastrophe] portfolio, although not to the extent that we saw last year.”

Retentions still in the spotlight

Alongside rate rises, property cat reinsurers pushed through retention increases to better insulate themselves from losses such as those that arise from secondary perils like severe convective storms and wildfires.

Not every cedant saw their retentions rise however, and some of those that did still need to have further increases imposed.

As such, Ningen said increases in cat retentions are likely for some clients.

“From a Swiss Re standpoint, we believe that our balance sheet is best positioned to take severity shocks, not frequency – that’s really what we anticipate insurance companies do when managing their own balance sheets.

“Attachment points last year absolutely moved in the right direction from our standpoint, but it was not across every single program.

“There were some programs that came out of it with moves in the right direction, but they’re not necessarily where they need to be.

“There are some clients that came in and said, ‘Hey, I understand what you're trying to achieve, but we need to do it over two years’.

“And I don't think we’re in the situation where we can just check the box and say, ‘Yep, this isn't a topic in the industry anymore’.

“Many of them moved in the right direction, but there is still some work to be done on select programs throughout the industry.”

Incremental retention increases

Ningen said more attention needs to be paid to retentions going forward, with attachment points increasing gradually every few years rather than in one major correction every decade or more.

“Over the course of the last 10 to 15 years, cedants didn't move their attachment points because the market was offering cover down at the bottom of programs.

“But as cedants’ portfolios grew and their losses developed, their attachment points, essentially from a return period standpoint, moved down every single year.

“What would be good health for the industry is if companies took stock of that and moved their retention points up every other year, or every third year, by small numbers.

“They could make sure that they manage their balance sheet, but also recognize that if they don't move them, the return period attachment point essentially moves down every year, and then we get into a situation like last year.”

Concurrency questions

Another area that Ningen expects to be firmly in focus at the upcoming renewals is non-concurrency in reinsurance contracts.

With cedants desperate for cat capacity earlier this year, there was greater non-concurrency between reinsurers on programs and an increased number of interests and liabilities (I&L) agreements on contracts.

“I think there'll be a push within the market to see if brokers can gain concurrencies, particularly within the cat space,” said Ningen.

“Clients had a really hard time lining up capacity last year around a single market contract. From a Swiss Re standpoint, we did a lot of our deals last year with a significant number of items in the I&L.

“And so it will be interesting to see what progress brokers can make on finding a contract that is acceptable across market standards, or if we'll end up in a situation again with a lot of differing I&Ls.”

According to Ningen, “securing the cat capacity isn’t going to be a problem”.

“But securing the capacity at the terms they have in the main treaty contract [may be challenging].

“From a Swiss Re standpoint though, we really feel like we're well positioned to collaborate with both our clients and our brokers on the solutions that they need for 2024.”