Continuing the market trends observed at the beginning of the year, the mid-year renewals in the reinsurance industry demonstrated improved timing and agreement on terms and conditions, according to global risk and reinsurance specialist Guy Carpenter, a subsidiary of Marsh McLennan.
While property pricing showed ongoing risk-adjusted rate increases in various segments, the average change was moderated compared to the start of the year.
Additional capacity and increased appetite entered the property market during mid-year renewals, but remained disciplined in terms of attachment points, pricing, and coverage. The casualty market continued to exhibit caution, with reinsurers closely monitoring prior-year loss development and the moderating underlying rate environment.
Key developments during the mid-year renewals include the following:
There is a sustained demand for limit, but market corrections have balanced the supply and demand disparity experienced in many regions a year ago, according to Guy Carpenter. Pricing remains firm, with a wide range of risk-adjusted rate changes observed across individual layers.
Global property catastrophe reinsurance risk-adjusted rate increases ranged from +10% to +50%, with higher pricing for clients impacted by losses. In the United States, property catastrophe reinsurance risk-adjusted rate increases were on average the highest in 17 years, with loss-free accounts generally seeing increases of +20% to +50%. Cedents opted to retain more risk rather than accept unfavorable terms.
While capacity for lower layers and aggregates remained constrained, new capital from existing market participants and growing appetite from other established reinsurers led to an overall rebound in capacity levels, Guy Carpenter reported. The preliminary year-to-date Guy Carpenter US Property Catastrophe Rate on Line Index, which measures price change and incorporates the impact of structural adjustments and risk views, increased by 35% for January through July renewals.
Reinsurance pricing pressure persisted across most casualty lines, driven by prior-year loss development, social and economic inflation, moderating underlying rate changes, and increased reinsurer margin requirements. Differentiation by clients played a crucial role in renewal outcomes. Sufficient capacity was generally available when market-clearing pricing was determined.
Quota share remained the dominant reinsurance structure, often accompanied by aggregate coverage. Capacity for quota share in the cyber market became more readily available due to improvements in underlying rate and portfolio performance. Aggregate capacity, pricing, and terms remained stable during mid-year renewals.
Mid-year renewals showed continuation of price and coverage trends from earlier in the year. The oversight following Jan. 1 renewals contributed to a more orderly process, resulting in a narrower range of quotes and firm order terms, according to Guy Carpenter. Capacity for retrocession was less scarce, mainly due to a modest reduction in demand stemming from retro pricing dynamics and favorable terms for inwards portfolios.
The first half of the year witnessed significant activity in the catastrophe bond market. By June 30, 41 different catastrophe bonds were issued in the 144A market, representing approximately $9.2 billion in limit placed. The total outstanding notional amount exceeded $37.8 billion, surpassing the full-year 2022 limit of $9.3 billion and the average limit placed in the first half of the past five years, which was $6.5 billion. Most bonds in the first half of 2023 were oversubscribed and priced within or below guidance. On average, spreads for cat bonds decreased by double digits compared to the fourth quarter of 2022, Guy Carpenter reported.
“Price adequacy across lines and supportable structures are expected to continue to drive sufficient capacity levels,” said Dean Klisura, president and CEO of Guy Carpenter. “For cedents, higher levels of retained risk across the business in 2023 will most likely impact volatility in 2024, necessitating strategic portfolio management.”
“Amid the capacity rebound, a highly viable and revitalized insurance-linked securities market has emerged with a flurry of activity occurring in the first half of 2023,” said David Preiebe, chairman of Guy Carpenter. “At Guy Carpenter, we are committed to enabling our clients to anticipate and navigate this ever-changing marketplace.”
Have something to say about this story? Let us know in the comments below.
