January 2022 Key Findings for the Reinsurance Market
- A year-end renewal season notable for its protracted and late negotiations yet ultimately, on balance, providing another rational outcome: With reinsurers seeking improved pricing and buyers determined to resist, the challenging 1.1 renewal season for 2022 has ultimately produced a wide range of outcomes, highly differentiated by client, portfolio and territory with final terms invariably settled on a client and portfolio-specific basis.
- Sufficient capacity and better balanced portfolios: Many buyers ultimately secured sufficient capacity knowing the continued improvement in the underlying business resulted in better balanced portfolios supported by largely consistent reinsurance structures to manage volatility and net lines.
- Variations in pricing improvements: Overall, reinsurers managed to achieve further improvements in pricing to build on increases of the past 18 months, particularly on loss making accounts. High demand for quota share placements on non-catastrophe lines showing consistent improvement in original pricing and conditions helped the placement of more stressed lines of business as reinsurers and buyers adopted a portfolio approach.
- Concerns around loss cost inflation featured widely across both short and long tail classes, adding to complexity of renewal negotiations: For long tail lines, the pricing of XOL covers was dominated by debates around underlying cost and wider social inflation. On short tail lines, inflationary concerns around constricted supply chains and labour supply leading to loss cost inflation were prominent.
- Stressed retrocessions markets: Constrained ILS capacity for aggregate and frequency retrocession covers was pronounced leaving some reinsurers facing potentially larger net exposures on volatile Nat Cat lines than they planned. This linked with a reluctance to expose more of their own capital even at current improved prices led to some scaling back of Nat Cat capacity with signed and not written lines only being offered on renewal.