Reinsurers Showed Discipline at "Orderly and Rational" July 1 Renewals

July 1 reinsurance renewals saw reinsurers remaining disciplined as they looked to bring terms and conditions into line with those seen at January 1 and April 1 renewals, according to analysis of the renewal period.

In its July 3, 2023, report, 1st View: Continuing Discipline, Gallagher Re says the reinsurance market was "orderly and rational" at July 1 renewals, with adequate capacity to support buyers' needs. "This resulted in a less stressful renewal process in most cases," the Gallagher Re report says.

In its analysis, Guy Carpenter offered a similar take on July 1 reinsurance renewals. "The broader market trends seen at January 1 continued at mid-year renewals, but with improved timing and concurrence around terms and conditions," Guy Carpenter says in its July 5, 2023, report, Reinsurance Market Continues To Recalibrate at Mid-Year 2023 Renewals. "While property pricing saw continued risk-adjusted rate increases in many segments, the average change moderated from January 1."

Both Gallagher Re and Guy Carpenter note the impact of new capacity on July 1 reinsurance renewals.

Gallagher Re's report suggests that reinsurance supply and demand showed signs of moving more into balance at July renewals.

The combination of new capital that entered the market, both through capital raising by traditional reinsurers and insurance-linked securities funds, along with reduced demand from buyers due to increased retentions and decisions to defer purchases of additional limits, contributed to that balancing, Gallagher Re says. "These factors greatly contributed to the more orderly renewal," Gallagher Re says.

An additional indication of that increased capacity was seen in the retrocessional market, Gallagher Re says, in that market capacity on an occurrence basis was available, though at high cost that often proved unattractive to buyers.

Guy Carpenter's report notes that the additional capacity entering the reinsurance market in July didn't alter reinsurers' disciplined approach.

"Additional capacity and increased appetite entered the property market at mid-year. However, the increased capacity remained highly disciplined around attachment points, pricing and coverage," Guy Carpenter says. "The casualty market continues to trend in a cautious direction. Reinsurers are closely monitoring prior-year loss development as well as the moderating underlying rate environment."

Gallagher Re's report saw contrast between the property and casualty reinsurance markets at July 1 renewals. Unlike the ongoing adjustments seen in the property reinsurance market, the casualty reinsurance renewals were straightforward with adequate capacity and flat-to-moderate price increases, Gallagher Re says.

"In many cases, reinsurers remained comfortable with the improvements buyers have been making in their underlying primary policies, including adjustments for recent inflation," Gallagher Re says. "In some professional line classes, after several years of significant increases in primary rates, there are signs of softening—but by and large, reinsurers have been prepared to continue their support as they see the rates as still being adequate, as an improvement in original claims frequency and disciplined limit management is continuing to mute the impact of severity."

Guy Carpenter saw reinsurance pricing pressure continuing across most casualty lines at July 1 renewals, driven by continued prior-year loss development, the effects of social and economic inflation, moderating underlying rate changes, and increased reinsurer margin requirements. "Client differentiation remains critical to renewal outcomes," the Guy Carpenter report says. "Sufficient capacity was generally available when the market clearing pricing was set."

In the property reinsurance market, July 1 renewals saw strong demand for limits continuing, though market corrections rebalanced supply and demand disparities faced in many regions a year ago, Guy Carpenter found. Pricing remained firm across the board, the intermediary said, with a wide range of risk-adjusted rate changes seen throughout individual layers.

Global property catastrophe reinsurance risk-adjusted rate increases ranged from 10 percent to 50 percent at July 1 renewals, Guy Carpenter said, with clients that had experienced losses often seeing higher pricing. US property catastrophe risk-adjusted rate increases were on average the highest in 17 years, according to Guy Carpenter, with loss-free accounts generally seeing increases of 20 percent to 50 percent.

"In many instances, cedents retained more risk rather than accepting unfavorable terms," the Guy Carpenter report says. "While lower-layer capacity and aggregates remained highly constrained, new capital raised by existing market participants and growing appetite by other established reinsurers saw overall capacity levels rebound."

Guy Carpenter says its preliminary year-to-date Guy Carpenter US Property Catastrophe Rate on Line Index increased 35 percent for January through July renewals.

In the cyber-reinsurance market, quota share remained the prevalent reinsurance structure, Guy Carpenter says. Overall quota share capacity was more readily available at July 1 due to improvements in underlying rate and portfolio performance, the report says, with aggregate capacity, pricing, and terms remaining stable.

Both the Gallagher Re and Guy Carpenter reports cite the impact of the insurance-linked securities market.

Guy Carpenter notes that catastrophe bonds' record first half of the year saw 41 different catastrophe bond issues raising approximately $9.2 billion in limit through June 30, nearly equaling the $9.3 billion issued in all of 2022.

Gallagher Re calls the ability of some insurance-linked securities (ILS) funds to attract new investments encouraging, supporting an increase in the number of bonds being issued, many with increased limits.

"Attention has begun to focus on ILS for other perils, structures, and opportunities, including cyber and casualty, as the property market comes more into alignment," the Gallagher Re report says.