MC roundtable: Reinsurers urged to be disciplined during nuanced 1.1 property cat renewal

Reinsurers will look to maintain the discipline shown at mid-year during the upcoming 1 January property catastrophe renewals as cedants seek to solve continued earnings volatility concerns, while discussions will be increasingly nuanced with much depending on the performance of each account.

Those were just some of the thoughts shared by a group of senior industry executives during a roundtable hosted by The Insurer in partnership with Lloyds Bank during the Monte Carlo Rendez-Vous de Septembre.

The 1 January renewals “will be nuanced”, said Kathleen Reardon, CEO of Hiscox Re & ILS.

“At mid-year, I felt the market held pretty firm. There was some pressure, but ultimately the discipline remained.

“Going into 1.1, it’s really important that reinsurers resist the temptation to chase market share – we really need to keep the rates sustainable so we can be long-term partners,” she added.

Waleed Jabsheh, CEO of IGI, shared similar sentiments.

“I would hope, and expect, that conditions will be relatively stable. It’s only been one good year, and you can’t simply use that to forget about the previous years that were a lot more challenging and painful.”

And as Jabsheh noted, while there has not been one seismic industry loss this year, it is not as though (re)insurers have gone through 2024 without being impacted by catastrophe events.

“There are pockets around the world that have had losses and which have been unconventional, or out of the ordinary. There were floods in the UAE and Oman, and Canada. Japan just got hit, and so did China and Vietnam.

“I think that those areas that will generate losses for reinsurers will continue to find it challenging as buyers. The good clients, I would expect, will be treated more fairly,” he said.

Reinsurers need to come to the negotiating table with a mindset of supporting their clients, SiriusPoint CEO Scott Egan said.

In recent years reinsurers have pushed through significant rate rises for property catastrophe protection, while also imposing increases on attachment points. As a result, primary carriers have been retaining more losses, and that has impacted their earnings when catastrophe events have struck.

“Earnings volatility has gone back across to the primaries, and the reinsurance market can't run away from that,” Egan said.

While it may take several renewals to find the right products, structures and pricing, Egan said reinsurers need to understand how cedants have been impacted by recent changes to their programs.

“The primaries don't like the earnings volatility that they're now seeing, and they've had two years of it, and that's causing them a problem at an investor level,” he said.

“There's a moment in time now where I think we need to start working together. The insurance industry has got a long history of working together with the brokers, the primaries, the reinsurers, to try and find better solutions,” Egan added.

Market brittleness

Andy Marcell, CEO of Aon’s Risk Capital and Reinsurance Solutions divisions, said it is hard to make predictions of what will happen across the property catastrophe market because “there are obviously going to be differences by country, loss experience and the type of client – from globals to regionals”.

“Generally speaking, even though the reinsurers will want the discipline to remain, and it broadly will remain, the supply of reinsurance is significant, and every reinsurer that I've spoken to in Monte Carlo wants to grow,” Marcell said.

And as the Aon executive noted, those reinsurers want to grow more than the increase in the limits that will be purchased by the clients.

“So there'll be competition, for sure, and there was already significant pressure on the tail end of cat programs, and that tail risk has been attractive to reinsurers,” he added.

“There’ll be a balancing out,” he said.

“One of the things the clients are conscious of – and certainly the brokers are – is that if there was a big hurricane loss, a typhoon or an earthquake that was going to suck up $100bn, then we’d fairly quickly be back to 2022 on the property side.

“There is a brittleness to the property cat reinsurance market which could be a challenge in the future, and finding ways to bring in more capital will still be attractive to clients,” Marcell said.

Rates “to come off”

Fellow reinsurance broking executive Simon Hedley, CEO of Acrisure Re, predicted pricing for US critical cat coverage “will start to come off a bit next year, if things carry on the way they are”.

“I don't think that's a surprise to anyone, and I don't think it's going to be overly dramatic,” he said.

However, Hedley suggested regional and mutual cedants in the US may have a more difficult time than their coastal, national and global counterparts owing to the loss activity that has hit some hard.

“That's going to be very much case by case, because it's super regional in terms of what their loss experiences have been over the first part of this year. But I think that group has still got challenges in terms of price and structure,” Hedley added.

As Hedley noted, those regional and mutual companies will still find it difficult “to get exactly what they need”.

While the coverage they want may be offered, it may not be at a price that is feasible.

“There's not new capacity coming into the market for those traditional aggregate deals at this point for those sorts of clients,” he said.

While traditional forms of industry capital may have limited appetite to support sideways protection for regional and mutual companies in the US, Hedley noted that increasingly other solutions are coming to the fore.

“In addition to traditional reinsurance are other capital solutions that have been applied to that space. They won't be appropriate or applicable to everyone who possibly needs them, but [it is an option] and there is some more capital coming into that space.”

Hiscox Re’s Reardon concurred.

“You can't solve everything with a traditional reinsurance product,” she said.

And while Reardon said alternative capital solutions can potentially help clients, she added that more needs to be done to manage the original risk.

“You can't just keep assuming that as the world becomes a riskier place there's a capital solution to that. Focusing on mitigation and educating that original consumer is really important,” she said.

Rebalancing

Aon’s Marcell noted that where a cedant is based will play a role in renewal discussions. European cedants are “in the main, pretty strong” and not facing the same pressures as their US-based counterparts.

As such, Marcell said European cedants are now “looking for a rebalancing of their relationships with reinsurers”.

European insurers are looking to solve issues with flood, hail and other perils, and Marcell said he expects reinsurers heading into 2025 will offer some clients coverage with features such as drop downs, along with more sideways protection.

“Some cedants will be able to find solutions because the reinsurers want to partner with them and they see a robust future for them. And some will have a less easy time.

“This is an area where Aon’s value is highly visible – we use advanced data and analytics to bring clarity to all our clients’ exposures, helping them to develop their own unique views of risk, which is highly important to successful renewals outcomes.” the Aon executive said.