The Insurer TV: Reinsurers’ resolve stiffened at mid-year after earlier disappointment

Senior executives reflect on the mid-year reinsurance renewals during an in-person discussion hosted by The Insurer TV in association with Guy Carpenter, with property business facing the toughest renewal in years as demand increased in response to losses and inflation while reinsurers’ resolve stiffened.

Will Garland, president – Centers of Excellence, North America at Guy Carpenter, described the mid-year renewals as “quite challenging” but said the market can be bifurcated between property and casualty.

“The property side is well chronicled in terms of the lack of capacity to meet client demands,” he said. “We definitely saw a struggle in terms of lower cat layers, quota share, aggregate programs. A big function of that is historic losses that are coming through as well as inflation and views on insured value and just the demand that’s needed to meet that matched with supply.”

He continued: “On the casualty side we’re continuing to see rate coming into the market and I think there is certainly ample capacity to meet the clients’ needs.”

David Marra, president at Renaissance Reinsurance US and CUO for casualty and specialty at RenaissanceRe Holdings, said that increased demand is not being matched on the supply side.

“There was $5bn of new limit purchased in the second quarter. That probably understates the amount of demand that’s out there because more limit would have been purchased if it could have been,” he said. “With property reinsurers not having met their cost of capital over the last five years, that makes it difficult to be able to grow exposure and raise capital for that kind of a risk.”

Chris Donelan, CEO of global reinsurance at Sompo International, highlighted that reinsurers’ resolve has built throughout this year.

“Coming out of 1.1 2022 people were probably a little disappointed on the reinsurance side and probably expecting a little bit more than what happened,” said Donelan. “As we went into 4.1, 6.1 and went to 7.1, it was momentum building in mostly the property lines but in general overall.”

He continued: “I think it just mushroomed at 7.1, maybe unexpectedly – I don’t think clients were probably prepared. That’s no fault of the broker or reinsurer. I just think it was that each year we’ve been talking about needing more and each year it just kind of fizzled, and then all of a sudden there was resolve.”

Donelan thinks enough reinsurance capital exists but that not enough is willing to actually participate in certain lines.

Limited spare capacity for nationwide property

Discussing the property catastrophe market in particular, Garland said it was a “very difficult” market in general and particularly for Florida at the mid-year renewals.

Guy Carpenter’s US property catastrophe rate on line index rose 15 percent from January to July, the highest increase in 15 years.

“Coupled with late legislative changes, the timing was very difficult,” Garland said. “For us, it was a challenge to get deals done in Florida, but I think the market did respond and we got deals done through a combination of different approaches, whether it’s traditional or alternative to get capacity for Florida.

“And I think in the broader property market, we’re seeing the least amount of spare capacity in a long time. So it’s definitely a challenge in both places at mid-year.”

RenaissanceRe’s Marra said that Florida is not a big piece of his company’s business. But the reinsurer does assume a lot of Southeast wind exposure through nationwide accounts.

“The supply-demand dynamics were definitely impacting the Florida accounts,” Marra said.

The executive highlighted Florida’s challenges with social inflation impacting claims over several years and the solvency of carriers being an “active issue”.

“On the nationwide accounts they were definitely helped by the fact that they have broad trading relationships across multiple classes. That enabled us to focus on how much return on capital we’re making overall, and required less adjustment than a pure cat trade, which the Florida companies would have had,” Marra said.

Sompo International’s Donelan noted that retentions in national accounts tend to be higher than in the traditional property market in Florida. This meant there was “a little less stress” on nationwide accounts but adjustment was still needed, he said.

“If you go back, historically Florida has given 30-40 percent of the profit for the entire cat market. That’s gone away. I think the stress of 7.1 depends on when you started looking at your book.”

During the 26-minute in-person discussion, senior executives from Guy Carpenter, Sompo International and RenaissanceRe discuss: