Host Mark Cobley speaks with four of Gallagher Re’s expert brokers about this key moment in the annual reinsurance renewal cycle, when a number of important regional renewals take place.
This podcast features insights from our leaders in several of those key markets across the globe: Brian Flasinski, CEO for North America; Heather Bone; CEO for Australia and New Zealand; Edson Wiggers, CEO of Latin America and the Caribbean, and Chris Hayday, head of Specialty Lines in the UK.
Mark Cobley: Hello and welcome to the fifth instalment of Gallagher Re’s 2024 renewals podcast series, where we go beyond the headlines of rate movements, T&C tussles and retention levels, and investigate some of the reasons as to why the July reinsurance renewal played out the way it did.
In this episode, we take a whistle-stop tour of insurance markets around the world where 7.1 is an important renewal date – ranging from the Americas to Australasia.
But we’ll start off with a quick global recap. At the start of July, Gallagher Re’s 1st View report summed up the mid-year mood with the word ‘balanced’. There was a good alignment between supply and demand, with reinsurers having enjoyed good results this year and happy to put their capital to work.
That was all the more striking, coming as it did at the start of a North Atlantic hurricane season forecast to be highly active. Indeed, as renewal negotiations concluded, Hurricane Beryl was already sweeping through the Caribbean – on its way to Texas.
We will return to Beryl in the next episode. But for now, it seems that this and other cat events have not unduly perturbed the market at 7.1. Broadly, risk-adjusted pricing on property catastrophe portfolios remained flat to -10%. Demand for additional capacity was met, including in Florida.
Casualty markets were a slightly different story, which we’ll come to a little later, though capacity was ultimately sufficient here as well. But we’ll begin with some thoughts on the property cat markets, from Brian Flasinski, Gallagher Re’s CEO for North America.
Brian Flasinski: The mid-year property renewals provided for a more welcoming market at July 1 than previous renewals, this was particularly key for sought-after cedants, who achieved greater consistency of pricing in terms of conditions in the transitioning market. Although there still existed a decent amount of uncertainty, particularly around secondary perils in the property cat market. So overall, the market was a lot less volatile for property in 2024 than it was in 2023, which is why we saw the mid-year renewals go from flat to -10% across the property cat spectrum.
MC: As Gallagher Re observed in June, the hurricane forecasts did affect the tone a little at the Florida renewals at June 1st. In particular, providers of insurance-linked securities or ILS, commonly known as cat bonds, seemed to be less willing to deploy capacity in the state – but there was still sufficient appetite from traditional reinsurers on hand.
BF: I think on the property side there was a significant increase in reinsurer appetite, which was driven by the strong capital growth, particularly as a result of the near record reinsurer returns in 2023. Completely agree, we did see that ILS capacity moderated in the closing weeks of the June 1 renewals and that was mostly driven by the predictions of the more active 2024 North America hurricane season. The end result, ultimately though, was there was adequate capacity to fill out deals at competitive pricing.
Ultimately the abundance of capacity is providing clients with more choice in reinsurers, and have them thinking about their reinsurance partners’ behavior over the last couple of renewal cycles, which has resulted in rewarding reinsurers that were helpful and penalizing those that weren't with significant sign downs.
I would say that the remediations made to the portfolios throughout 2023 – starting in 2022 and then throughout 2023 – secondary perils, you know, with the increase in retentions across the board, secondary perils are becoming more of a net retained peril. And so overall I think that we haven't seen that impacting the reinsurance market at mid-year 2024 as we did in 2022 and 2023.
MC: Catastrophe events also had an impact on the renewal discussions a little farther south. Here’s Edson Wiggers, Gallagher Re’s CEO of Latin America and the Caribbean.
Edson Wiggers: As we reported in the last Gallagher Re 1st View, during the 1.7 renewal, reinsurers continued to very cautiously manage their exposures, especially when it comes to wind exposures on beachfront areas. However, most of them demonstrated appetite to keep supporting organic growth from their existing clients, and some of them even increased their lines, but more specifically on the top layers. Differently from what was reported in the US, no risk adjusted reductions were observed in Latin America and in the Caribbean in this 1.7 renewal.
From the cat activity, prior to 1.7 the region was impacted by two large losses. One is Otis in Mexico in late 2023, and more recently the floods that severely affected the southern part of Brazil in April and May this year. Otis moved from a tropical storm to a CAT-5 hurricane in less than 24 hours and caught a lot of people by surprise and generated above two billion dollars (USD) of insured losses. Although this is not characterized as a massive cat event compared to previous hurricanes in Latin America and in the Caribbean region, it is one of the largest events in Mexico, so very impactful.
And therefore, in that particular territory, during the 1.7 renewal reinsurers were quite firm in terms of the risk-adjusted increase, which ranged from plus 15% to up to 35%, with some particular cases more affected, experiencing even higher increases.
MC: For portfolios that did not suffer big losses, however, price movements were not so dramatic. Here’s Edson again.
EW: Overall, reinsurers accepted firm order terms for loss-free cat programs with risk-adjusted moving from flat to plus 5%, different from the peak levels observed in 2023 when increases were more significant. This indicates that reinsurers are now comfortable with the technical pricing adequacy that was reached over the past years after the increases applied. The losses related to the severe floods affecting the southern Brazil still are being reported. The official numbers the Brazilian Confederation of Insurance Companies released on June 19th indicates a total insured loss of 775 million dollars (USD).
However, market total loss estimates points towards around 2 billion dollars (USD), with property and engineering expecting to have a further loss development compared to other lines of business. Around one third of the reported losses are motor, which is a portfolio predominantly retained by the Brazilian insurance companies. So minimal impact to reinsurers, not to say, ‘no impact’.
On the property, engineering, and other property & casualty lines of business, are expected to generate an impact to the reinsurance market, especially from large industry, warehouses, roads and similar risks. Another point which is worth to mention is that the local airport, which is a very active one, was closed on May the 3rd, and based on the latest report from the operator and the Brazilian government just a few weeks ago, it is expected to partially return to operation in October this year, and back at full capacity no earlier than December 2024, which subject to the limits of the policy, can represent a large insured loss for both property and business interruption, apart from the economic slowdown impacting the region.
MC: With the event taking place just weeks before the renewal, it is too early to say exactly what impact the Brazilian floods will have on the reinsurance market. However, Gallagher Re will be working with affected clients to help them show reinsurers the quality of their underwriting.
EW: Although not a hurricane or earthquake exposed country, no doubt Brazil can no longer be considered a non-cat country. The increase on flooding, landslides, drought and cyclones activities have brought a new reality and the market is looking at wider and more robust cat protections. In addition, this is an opportunity for the insurance market to further support the community and the economic sustainability by delivering new product and solutions. We have been discussing this with our clients, prospects and the local market. This event can definitely impact the market and the reinsurers are expecting treaty risk-adjusted adjustments, subsequent to the programs affected by this event, but I think it’s critical that we demonstrate to reinsurers that clients have been relentlessly working in identifying what underwriting and risk management initiatives they were able to implement to manage the cycle, and to look forward on the portfolio sustainability, and provide reinsurers the comfort that insurance companies are effectively and disciplined taking action to improve their results, this is what we have been very closely working with our clients. But as well, it is important that the industry keep delivering solutions and playing an important role in the wider ecosystem, meaning supporting the local economy, the community and further development of the insurance market.
MC: On the other side of the world, by contrast, 2023 was a relatively benign year for cat events in Australia and New Zealand. Put that together with reinsurers’ strong finances, and that allowed this year’s reinsurance renewal to proceed with confidence. Heather Bone, Gallagher Re’s CEO for Australia and New Zealand, picks up the thread.
Heather Bone: I feel like this one was quite a high confidence renewal actually compared to the last couple of renewals. We saw a lot more markets willing to quote. We saw a lot more consensus around pricing.
It was a lot more sensible, so we were actually able to set pretty realistic budgets early on with our clients and it was then quite evident that we were going to come in under those budgets and that's always a good place to be. It means that they're not having difficult conversations with board and management around moving parts.
Yeah, we saw a lot of reinsurers come through town around February, March. That's quite standard, and in the last couple of years it's been very much a laundry list of here are the wording changes, the exclusions; here are the appetite constraints. This year, without exception, it was ‘We want to grow. How can we grow? Where can we grow?’
So, it was much more positive going in and like I say, with a lot more markets willing to quote it gave us a lot more confidence. It gave our clients a lot more confidence and it landed really well. So, I'd say I'd characterize it as high confidence.
It's been a relatively benign year for Australian cat and New Zealand cat as well, so none of our programs had any particular losses. There have been a couple of bigger storms, and a couple of cyclones and hailstorms, but they've tended to hit the insurers rather than the reinsurers.
MC: It was a similar story in the UK and Specialty insurance markets, according to Chris Hayday, head of specialty lines at Gallagher Re UK.
Chris Hayday: You know, we weren't without severe weather events in the UK, whether it was freeze, whether it was flood. But again, I think the harder market conditions of 2023 meant that a lot of cat attachment levels were increased. So that was both on the reinsurance side, which was the predominant driver on that, but also, the original carriers putting higher excess points on their policies that they are issuing to their customers, being more restrictive with sub limits for catastrophe perils, and things like that meant that the insured losses and therefore the reinsured losses, were not particularly significant. Meaning that we went into renewals with a lack of loss-affected placements in 2024.
MC: Gallagher’s UK Specialty business also covers some global risk placements, with exposure to oil and gas power lines of business – which are expected to be higher-hazard in most years. Even here though, 2023 was a quiet year, and this helped make the 7.1.24 renewal smoother.
CH: Going into the 2024 renewal season, and the mid-year placements that we've just seen, now, we've seen 12 months of clean, kind of large industrial risk placements. So reinsurers have made profit in the last 12 months. That always makes a conversation with the market more straightforward, more pleasant than going in with a loss-affected program. Reinsurers will look at amortizing those losses over several years, so it's not like the rates were coming off drastically. But then again, there was a little bit of flexibility, especially when we're looking at program prices. On a layer-by-layer basis, some of the layers may vary in terms of whether they’re paying plus, minus or flat, but on the programs as a whole, certainly, we saw some success in getting some reductions in price and rate, by contrast with 2023.
I think we quoted it in first view, but I would say it is a balanced market. We spoke about it being an orderly renewal at 1.1 by contrast with 2023, so I'd say that has continued into the mid-year renewals. And we are seeing some flexibility from reinsurers, which is assisting our buyers with their decision-making. But it is relatively balanced. I wouldn't say that it is softening particularly. But it is remaining orderly and balanced.
MC: Turning our attention to the casualty markets, things were less straightforward here. A combination of the adverse development of losses recorded in prior years, plus the propensity of US juries to award ever-increasing sums in so-called “nuclear verdicts”, continue to cause concerns. Complicating the picture, there is a lack of consensus among reinsurers about how these issues will develop in future, according to Brian Flasinski.
BF: Contrary to the property market, reinsurers are a little less confident about the casualty line. This is being driven by adverse development reported by liability insurers late last year and earlier this year. This, coupled with the economic and non-economic loss inflation pressures that reinsurers were already facing, it has created in additional uncertainty in the marketplace for casualty reinsurance.Overall, there's a lot of different pieces that make up what the view is, and I think there's not a consensus view amongst reinsurers on the perspective health of the line going forward. Obviously, we've seen the loss inflation pressures, which has created some adverse development. The nuclear verdicts, as you mentioned. So overall, I think there's a lot of factors going forward that can impact the market.
But overall, on the casualty side, the supply/demand dynamics still remain stable with adequate capacity. The reality is there has been some minor changes in reinsurer panels, indicating a lack of consensus amongst reinsurers, but overall, the question really is: Is the current rating environment outpacing loss-cost trends?
MC: And in a market with ample capacity available, the importance of long-term relationships between cedants and reinsurers really came to the fore in the Australasian renewal – as Heather Bone explains.
HB: We have a lot of casualty programs renewing at 1.7 and they are all very nuanced, you know, whether it's the type of cover they offer, whether it's the legislative jurisdiction they operate in, whether it's the mechanics of a scheme or the way that they calculate claims payouts, if they're kind of statutory schemes and stuff.
So, everyone is quite different, and so we have seen some areas where there have been higher losses. It's nothing like US casualty, you know, there's nothing in those sorts of realms in terms of the nuclear verdicts and that sort of thing. It's much more controlled in that sense.
There have been, I suppose, particular areas where we've seen some loss activity and there’s been some pricing correction in those areas, but we’ve not seen too much across the board. You've always got an inflationary element coming in with the casualty business, but again, it's an area where we see a lot of interest from markets. So those casualty programs got filled very quickly.
Again, they were pretty comfortably oversubscribed, and you got a lot of new markets wanting to come in. Every one of those reinsurers that came through in February was looking at how could they grow casualty, but there’s a lot of loyalty within the casualty market. They're very long-term partnerships and so unless somebody ends up very out of step with the market in terms of their view of the risk, there tends to be quite a lot of stability around those programs.
MC: That’s all we've got time for in this first episode, but be sure to return for part two, which will drop shortly. We’ll discuss in more detail some of the challenges that insurers face – the developing hurricane season not least among them. And we’ll take a look at how we as reinsurance brokers are helping to tackle those issues and secure the best outcomes for our clients.
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