January 1 renewals reflect a responsive reinsurance market – Guy Carpenter

Guy Carpenter has reported a notable shift in the reinsurance market at the January 1 renewals, characterized by sufficient capacity and a pragmatic approach to trading partnerships, while maintaining a focus on underwriting diligence.

The reinsurance sector witnessed an increase in capacity towards the end of the year, attributed to a resurgence in capital and robust returns from reinsurers, which are projected to be around 20% for 2023.

As per data from Guy Carpenter and AM Best, total dedicated reinsurance capital saw a 10% rise from the end of 2022. This growth differs from previous trends after major market corrections, and was primarily fueled by established reinsurers without the emergence of a new class of startups in 2023.

Dean Klisura, president and CEO of Guy Carpenter, observed that the January 1 market conditions were more balanced, offering cedents improved opportunities to meet their goals while preserving key relationships with reinsurers.

“Technical discussions were essential to reinsurers’ increasing appetite and capacity allocations,” Klisura said.

The market dynamics also allowed for adequate to ample capacity for program completion across various classes, provided pricing and structural thresholds were met. This included cases with additional demand. A notable increase in consistency at contract level in terms of wording and structural variations was observed, leading to a decrease in non-concurrencies from the previous cycle. This trend indicates efforts by all parties to achieve equilibrium in a complex market.

A smoother renewal period for reinsurance

The January 1 renewal period was also reported to be smoother than the end of 2022. However, some regions and client segments still faced challenges in reaching market-clearing pricing and structures. The outcomes were contingent on loss experience and data-driven insights, reflecting reinsurers’ emphasis on a deeper understanding of portfolio dynamics. While property renewals were central last year, casualty segments received increased scrutiny this year.

Significant developments during the January 1 renewals included a more consistent rhythm in the property market and adjustments in capacity deployment. There was a meaningful recovery in capacity, particularly for new business, and a heightened sensitivity to pricing, attachment points, and overall structural adequacy. Discussions on subjectivities like strike, riot, and civil commotion (SRCC), terror, and cyber led to significant improvements in concurrency among placements.

Global property catastrophe reinsurance risk-adjusted rate changes varied, with non-loss impacted programs remaining relatively flat and loss-impacted programs seeing increases. Pricing pressure was most significant at the lower ends of programs.

In the casualty sector, there was a focus on pro rata ceding commissions and excess of loss pricing. Successful renewals hinged on differentiating client portfolios and reflecting future portfolio strategies in actuarial assumptions. Demonstrating discipline in underwriting measures was crucial for renewal pricing.

Reinsurers are projected to have a profitable 2023, with returns on capital surpassing the cost of capital. Property retrocessional capacity was readily available, contrasting sharply with the previous year. Price improvements were noted in middle to upper layers, and retention levels remained stable.

Other key market developments reported by Guy Carpenter include a rebound in dedicated reinsurance capital, a record year in the catastrophe bond market, and a preliminary estimate of US$94 billion in total insured large losses for 2023. This estimate includes significant events like Hurricane Otis, the Turkey earthquake, and various storms and floods, and is expected to rise as more data becomes available.

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