Reinsurance renewals as of January 01 were shaped by deteriorating loss experience, a lack of new capital inflows and increasingly challenged environments in the primary insurance and retrocession markets, according to a report by global risk and reinsurance specialist Guy Carpenter & Company.
While reinsurance supply was largely able to meet increasing demand in all but the most constrained areas, outcomes varied by geography, line of business and cedent, Guy Carpenter said.
Changing market sentiment was largely driven by the loss environment and shifting views of risk, it outlined. The impact of risk reassessments has been particularly pronounced in the primary insurance market, where derisking exercises at some companies have led to the scaling back or withdrawal of capacity from some underperforming business lines.
In what the reinsurance specialist described as an asymmetrical market, classes where underlying performance remained positive and profitable often resulted in renewals, or, in some cases, modest rate reductions. Those with more strained operating conditions, on the other hand, faced market corrections. The most pronounced reinsurance rate hikes were localised in specific regions or markets, generally led by successive years of losses, deteriorating performance or changing risk perceptions, Guy Carpenter said.
“The reinsurance sector is undergoing a period of transition as risk-quantification strategies incorporate new information, and risk appetites are adjusting accordingly,” said Peter Hearn, president and CEO at Guy Carpenter. “The response of the reinsurance market to these dynamics continues to evolve. At January 01, 2020, there was more than sufficient capital relative to demand for most renewal placements, even as reinsurers navigated elevated losses and adjusted underwriting assumptions to reflect changing perceptions of risk. However, market conditions have clearly tightened, and negotiations became a function more of price than capacity.”
“The reinsurance market enters 2020 in a solid position, with initial analysis of dedicated reinsurance capital up slightly as compared to a year ago, bolstered by mid-single-digit growth in rated capital in 2019,” said David Priebe, chairman of Guy Carpenter. “Accounting for the impact of trapped capital, total available capital at January 01 is close to flat. While reinsurers will continue to deploy capacity cautiously, with cedents’ performance and loss experiences scrutinised closely, the sector remains well-capitalised overall.”