GC: pull back in ILS retro capacity drives progressive hardening

The hardening pressures in the property retro market seen at 1 January have been sustained through 2022, with capacity for aggregate and low attaching occurrence layers remaining tight in contrast to less supply constraints for layers further up the tower, according to Guy Carpenter.

The firm said that market dynamics reflect the sustained period of cat losses since 2017, growing climate-related concerns, inflation and modelling challenges.

In a presentation as part of its pre-Monte Carlo Rendez-Vous briefing today, the reinsurance broker described a progressive hardening that led to a retraction in mid-year buying appetite.

Purchasing of retro continued to shift away from aggregate as overall limit bought was down 4 percent year-over-year.

Occurrence purchasing increased by 13 percent, but aggregate purchasing was down 39 percent amid limited availability of the product.

Guy Carpenter reported that ILS capacity supporting retro was down 17 percent overall, with retractions differentiated by fund. At the same time, rated capacity actually increased overall by 5 percent.

The impact on pricing was an average increase of 13 percent for occurrence limit in 2022, and more than 20 percent for aggregate coverage where it was available and purchased.

Looking ahead to the 1 January renewals, Guy Carpenter’s CEO of global specialties James Boyce said: “Retro capacity will remain somewhat limited for aggregate and low attaching per-occurrence layers, despite material de-risking in 2022.”

In contrast, the “generally positive performance” of mid- and upper-level retro occurrence layers will remain attractive to markets looking to deploy capacity, he predicted.

“Buyers will look for a balance between spend and retention levels, supported by the improvement in terms and conditions of the underlying business,” suggested Boyce.