Jan. 1 renewals reveal healthy but evolving market – Guy Carpenter

Jan. 1 renewals demonstrated a healthy but evolving market, with reinsurers adjusting risk appetite and pricing thresholds for some sectors in response to ongoing and emerging challenges, according to a new study by Guy Carpenter, a Marsh McLennan company.

“The changing nature of risk fundamentally influences reinsurers’ view of pricing and capacity allocations,” said Dean Klisura, president and CEO of Guy Carpenter. “It is clear from the January 1 renewals that strategies are adjusting to account for these factors. Cedents’ views, supported by portfolio data, will continue to drive renewal outcomes. This emerging reality further emphasizes the critical nature of our advisory role. We will continue working closely with our clients to help them manage this shifting environment effectively.”

Key aspects of the Jan. 1 renewals include:

• Placements were ultimately orderly once terms were issued and market participants effectively traded through the dynamic environment.
• Differentiation continued to increase across reinsurers’ views on risk and focus on individual placement characteristics.
• Conditions were bifurcated between non-loss-impacted and loss-impacted programs. Programs impacted by loss or presenting greater risk to reinsurers saw more protracted and challenging renewals.
• Dependent on price, capacity across most lines was ample. However, it was more constrained for retrocessional and frequency-exposed property and cyber aggregate programs.
• The renewal process was later than normal in some sectors including property, lagging up to 14 days behind typical timings for the period.
• The Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8%.

“The reinsurance market is evaluating a broad spectrum of forces, including climate change, cyber threats, core inflation, social inflation, and the continued evolution of frequency and severity of catastrophe losses,” said David Priebe, chairman of Guy Carpenter. “While reinsurers reassessed underwriting strategies, resulting in a late and varied price discovery process, outcomes were successful, and Guy Carpenter was able to support clients in what has proved to be a very dynamic marketplace.”

On the whole, there was ample capacity in the global property sector to complete programs, with greater market appetite for non-loss-impacted upper layers, Guy Carpenter said. Capacity was tighter on lower layers, aggregates, multi-year and per-risk, especially if loss-impacted.

In global casualty, portfolio performance and underlying rate movement were critical factors at renewals, the company said.

Other market developments included:

• The Guy Carpenter Global Reinsurance Composite Index is on track to produce a combined ratio for 2021 of below 100%, including the impact of elevated catastrophe loss.
• 2021 was a record issuance year for the 144A catastrophe bond market, posting $11.5 billion in new bond issuance through 45 unique transactions, taking the total outstanding notional amount to more than $31 billion.
• Guy Carpenter and AM Best estimate total dedicated reinsurance capital for 2021 at $534 billion, reflecting growth of nearly 3% year over year.