Host Mark Cobley explores some of the challenges that clients faced at this year’s renewal, and the difference our brokers made in finding solutions for their clients.
This podcast features insights from James Vickers, Nick Croxford, Ditte Deschars and Chirag Shah at Gallagher Re.
Mark Cobley: Hello and welcome to the Gallagher Re “On Record” podcast, where we’re taking an in-depth look at the reinsurance market renewals at the key dates of January, April and July.
In this second January episode, we’ll be exploring the story behind the headline figures, and looking into some of the challenges that insurers faced at the 1.1.25 renewal. And we’ll examine how we as brokers worked with our clients to help them put their best foot forward with reinsurers.
We’ll take a fascinating look at how AI can help with some of the analytical work that goes into the renewal. And we’ll also have an update on renewable energy, which is a growth market for Gallagher Re.
But we’ll start with the situation in the casualty market. As we heard in the last episode, capacity in US casualty was more constrained than in many other areas, with greater variation in reinsurers’ appetite. As a result, the scrutiny of cedants’ underwriting and claims strategies reached a level not seen in decades.
This put a sizeable premium on the clear, data-driven analysis needed for insurers to show their casualty business will be profitable in future, despite rising US healthcare costs and court awards. This focused both on showing the underwriting actions, and also their claims management, as Chirag Shah, Gallagher Re’s Global Head of Casualty, explains.
Chirag Shah: When we drill into US casualty, the area of most significant focus or concern really is around loss trends, and particularly loss trends that may impact umbrella and excess liability. And you know, what we've been seeing over the last several years is an increasing loss trend, particularly increase in the severity of loss, for reasons that have been well investigated.
It's particularly associated with the types of settlements or jury awards that are coming through and we continue to see, which is very legitimate issue. We continue to see losses coming through that are you know much more significant than in the past. I think the big story, though in terms of how carriers are managing this, is in one, the underwriting actions that they've been taking. So, you know we have discussed for several years how carriers have taken significant action around limits management, repricing the risk, underwriting the risk through, for example, E&S channels to drive more relevant coverage restrictions.
But the other side of the coin, which I think was really the focus of this year's renewal, was around claims management. How carriers are tackling the claims issues was very relevant, in terms of driving the outcomes that we ultimately saw.
MC: And as Chirag also pointed out; while the financial outcomes of the renewal were relatively stable, in many ways this was testament to the work that went on behind the scenes.
CS: For the last six months, what we've been doing is preparing our clients for what was to come; the questions that we expected to reinsurers to ask, the information that we expected the reinsurers to ask for, and really ensuring that the clients were telling their story in the most comprehensive way possible, and that's from an underwriting strategy standpoint, how clients and carriers are mitigating the potential risks that are out there, from a loss trend perspective. But equally, giving reinsurers the appropriate data to be able to understand these underwriting strategies and claim strategies in order to put together an analysis that gives a much more comprehensive picture about what the profitability may look like in the future.
And so, what I mean by that is if you just sort of look at industry data and run the tabular analysis, what it does suggest is that there is a heightened amount of loss coming through and the loss patterns are looking much worse than we would have expected. But there is a lot that's happening in terms of the data beneath the surface and that's what we’re really focused on for, at least for our client sets, that's what we're really focused on. It’s helping our clients articulate what's going on underneath the surface through evidence-based analysis, and ways for reinsurers to be able to quantify the underwriting strategy.
MC: These data and analytics capabilities really came to the fore at 1.1.25, according to James Vickers, Chairman of Gallagher Re International. With evidence in hand, reinsurers had the confidence to offer better terms, or price reductions.
James Vickers: They want to grow, and they want to grow particularly with selected clients. And those clients were able to achieve better results, and they did it primarily by differentiating themselves through superior analytics. I think the days of saying to a reinsurer, look, I'm a better client, I've got a better portfolio, you need to give me better terms are over – you have to back that up with very, very detailed analytics to demonstrate to the reinsurer that your portfolio is different, is better, and why it deserves to have these slightly better terms.
At the same time, the reinsurers themselves, they welcome this additional detail because it enables them to have comfort the business that they're putting on their books – where maybe they've conceded a rate reduction or some other small changes – it's still very profitable and well above their target levels, and they can make money at it. So, this was absolutely not a year to go into a renewal without a very, very detailed, analytically driven approach, and the buyers who could do that prospered.
Now, of course, this is where the brokers come in, because, you know, primary companies do struggle a lot with data. There's more and more and more and more data coming. Everybody wants it. But how on earth to stitch that all together into a coherent, compelling story that will achieve the results you want from the reinsurers. And this is where brokers like Gallagher Re spend a huge amount of our time, helping clients assess their data, organize it, work out how best to present it and then go and explain it all to the reinsurers, get them to buy into the story, the analytical story that underpins. Which then allows the individual underwriters to quote better terms and to then be able to justify it internally within their own organizations, when their bosses are saying, well, hang on, why did you give a rate reduction here? What's happening here? They need to have a story to explain, well, we did it because of … [X, Y, Z]. And so, as I said, buyers who came well prepared with a strong, analytically driven story were able to achieve some improvements.
MC: This was a point echoed by Ditte Deschars, Gallagher Re’s Global Head of Reinsurance Carrier Management.
Ditte Deschars: I think what is really important, is that we work very closely with our clients throughout the year to prepare them to differentiate themselves, right? How can they make their portfolio stand out? Because it's one thing to find the data, but it's another thing to turn it into a convincing story. It's another thing to be able to quantify the trends and do realistic, believable ‘as-if’-ing, because we don't only do it for the reinsurance placement. We do it for the clients also for their internal risk management. So, this we work a lot with our clients on that. And another thing is that we really work hard to line up markets, reinsurers, long before the renewals start, so that when the renewals start, our clients are hopefully on top of the pile and get the, you know, get the attention that they deserve.
MC: The past 12 months has also seen an enormous proliferation of potential business applications for AI in insurance and reinsurance, as Gallagher Re has documented in our quarterly InsurTech reports. AI is also helping insurers get their vast datasets in order for renewal discussions, but in a firmly supporting role. According to James Vickers, it is unlikely to be replacing human brokers any time soon.
JV: Reinsurers are looking at what they want, and it is data that's presented in a sensible way that they can ingest into their own systems and use. Where AI is beginning to be used is actually in sorting out the data in the first place. The challenge for most primary insurance companies is they've still got a lot of legacy systems. A lot of the information that's needed is in a variety of different places. So, pulling it all together, turning it into a sort of coherent, sensible document on file, is hard work.
And that's, I think, where we're beginning to see little bit of AI being used. But then the real skill is, once you got that data assembled, is actually looking at what it tells you and building the story around it. Well, fine. We've got it all organized nicely, but we’ve now got to analyze it. Run it through cat models, run it through actuarial models. See what stories are coming out of it. See what we can do, what the data tells us can support the story that the client and the broker is trying to articulate to the reinsurer.
MC: Staying ahead of market trends is a key part of brokers’ job, and AI is not the only industry of the future. Renewable energy is another area where Gallagher Re has expanded its capabilities in recent years, and was delighted when a host of new clients trusted us with their business during 2024. Here’s Nick Croxford, Head of Marine, Energy & Aviation, with more:
Nick Croxford: An increasing area for us is the renewable energy space. You know, we've made some significant investments in that, and it's really satisfying to see those paying off. We've picked up a number of new renewable energy-specific treaties, not only in Europe, but in Asia as well. You know, we've done a mixture of excess of loss and quota share, for some large international clients, with some more local clients. We've supported MGAs. So that renewable energy practice group that we've set up is proving to be really successful. And when we look at the growth potential for that area, it’s something we're very excited about, we see we've got a significant head start over our peers on that. We've got a mixture of execution capability, but also engineering capability as well, so we can cover all angles there. And I think that's been – it's very, very satisfying to see that pay off.
MC: Gallagher Re has also been very active in helping to develop and deepen the cyber insurance markets, which again bore fruit during 2024. Here’s James Vickers again.
JV: A lot of the efforts we've been making on the analytical side to give people more comfort about the ultimate tail risk in cyber have begun to be paid off, and primary companies are becoming a little bit more confident about retaining more so they're reducing their quota share cessions, beginning to buy more excess-of-loss cover, and reinsurers becoming more confident about writing excess of loss when previously they were just on the quota-share side. So, we're a big driver in that market. And particularly, I think the paper we put together with Munich Re and Beazley was a really helpful educational piece for the wider market. And of course, at the same time, the buoyant ILS market has supported a number of cyber cat bonds. I think there's six out there, and we've done 60% of them.
MC: Helping our clients to navigate the unique dynamics of particular parts of the reinsurance market is a perennial focus for Gallagher Re. This year, for example, there was an interesting balance to be struck in the marine and aviation markets. Abundant capacity led to some increased interest from reinsurers in taking lead roles, but there was also a lag effect from some large expected losses, which helped to keep panels stable. Here’s Nick Croxford to explain more.
NC: We've definitely seen newer, or markets that haven't led in the past, be willing to quote. Obviously, there's a dynamic around market panels changing with A) the Baltimore bridge loss and B) potentially 2022 reinsurers being asked to pay the aviation war claims in 2025, so that dynamic was used – was certainly spoken about – depending on which side of the fence you're on, by clients and reinsurers. So, I think there was definitely changes in market placements, but not significant, because in general, clients are aware that there are some potentially large losses out there, and a loyalty to those reinsurers who are going to be paying those over the next two or three years, probably will pay dividends. Shaving a small amount off a whole-account layer when you've potentially got a very large claim coming doesn't sound like a particularly great trade.
We were very cognizant the fact that the market was softening throughout December, as I said I don’t think I've ever seen it go off a cliff quite as quickly as it did. And we were very cognizant, and made our clients aware of that. But at the same time, as an advisor, as a broker, we also have to make them aware of the fact that there are potentially losses coming down the pipeline that have already happened from the conflict, and managing those reinsurer relationships should also be taken into consideration. So, it's a balance between how hard can you push in 24 to get the same as 25 compared to what sort of conversations might you be having with those reinsurers in two or three months time. And that's the job of the broker, right? It's not just to look short-sighted, or to look in the short term. You've got to look medium- and long-term as well. And I think we did that with all of our clients who might be impacted by those by those events.
MC: Summing up, Ditte Deschars suggested there were two key challenges for clients at this year’s 1.1 renewal. On the first – regaining ground on price that was lost at the past two renewals – clients can be broadly satisfied with the outcome. But the second will likely set the tone for further discussions in the months ahead.
DD: I think there were mainly two things from a client's point of view. The first is, of course, after having gone through the 1.1 renewal that was a big hardening, when prices went up considerably, in ‘23 and still a bit in ‘24 – I think the ‘25 renewal was really clients had to show their management that they could use, you know, make most use of the softening market, and regain some ground lost over the previous two renewals. So, this generally resulted in some risk adjusted price reductions rather than lowering on attachment points, for example, because they held quite firm.
The other key challenge was for loss impacted treaties, and especially treaties that have seen frequency of losses over recent years. They faced lengthy discussions about value of risk and if the past is a good indicator of the future. And this was both on cat, on various perils; but also on risk programs, and we have not seen the end of those discussions yet.
MC: And on that intriguing note, we bring our 1.1 post-renewal discussion to an end. But we'll be back after the 4.1 renewals in April, to see how some of those discussions that Ditte mentioned play out, as we progress through the first quarter. So, make sure to hit subscribe on wherever you get your podcasts. Thanks for joining us, and see you next time.
