But there’s one thing to take away from this year’s Monte Carlo: cat/all risk treaty brokers will be working overtime in the fourth quarter to finish their clients’ programs at 1.1.
The problem is likely to be more acute in the United States, the largest reinsurance market in the world. Typically, the US real estate cat treaty market is in the region of around $200 billion limit.
Midway through the year, squeezing cat appetites and rate increases saw 1.6 investments struggling before the dysfunctional Florida market nearly imploded.
Soaring inflation will mean that most sellers will need to buy at least 10% more limit just to stay still (hence the $20 billion estimate).
The purchase imperative will be different depending on the buyer. But for some insurers, rating agency models may mean the full additional limit will need to be purchased to maintain BCAR levels.
As the impact of this year’s inflation has so far not been taken into account in the January 1, 2022 renewals, some sources have suggested pricing will need to reflect a “compensation” rate for missed inflation. , as well as taking into account the forecasts for 2023.
Some reinsurers have suggested that 15% rate increases will only leave them in the same position as before on margins, with no adjustment for the risk associated with uncertainty around secondary perils which they say must also be reflected. at 1.1.
This could mean expectations for increases of 20% or more ahead of any potential major chat activity for the rest of the year. This eventuality could “break the deal”, as one reinsurer CEO put it.
It is certain that prices will rise – whether or not the wind decides to blow late – but even at higher prices, the obvious lack of appetite for extra cat to meet demand means that returning renewals home will require a major effort.
The litmus test will be 1.1, when a significant number of major US national (and of course global and European) treaties are renewed. All other things being equal, reinsurance brokers may need to find up to $20 billion in additional limit.
Anecdotal evidence indicates Allstate and state farm are looking to buy at least $1 billion in additional limit each, while other major US-based carriers including Liberty Mutual It is also believed that they have expressed their need to buy a lot more protection in future renewals.
But rather than rise to the challenge, cat reinsurers stopped pedaling and, in some cases, braked or left their bikes on the side of the road.
Re axis left completely, while marcel closed its reinsurance underwriting unit and instead transferred part of the portfolio to its manager ILS Nephila. Axa XL significantly reduced, as did Score and TransRe – although these reinsurers have all declared their commitment to building significant cat capacity under the redefined appetites.
Where there is enthusiasm, it has so far been relatively subdued. Speaking at a round table organized by this publication in the Principality, Swiss ReCUO Thierry Léger adopted a cautious tone. Some Lloyd’s insurers, including Ariel Re – appear to be “leaning”, just like a few other markets like PartnerRe and Aspen Re moderately. But caution reigns supreme.
There are also no obvious signs of a new wave of new abilities starting other than a few isolated projects (see our article earlier this week regarding old Everest Re managing director of reinsurance, John Doucette, who isn’t cat-centric anyway). Investors are also cautious.
This is therefore the challenge that reinsurance brokers set themselves with their clients. In the USA, the investments of large national accounts are dominated by the “big two” aon and Guy Charpentier.
Andy Marcell, head of reinsurance at Aon, acknowledges the task created by market conditions. Arrived at appointmenthe told this publication that part of the job of a successful intermediary is to “build capacity for our clients”.
The optimistic view must be that more capital will be allocated as we get closer to 1.1. But it’s going to be hard and with that – we imagine – there will be programs where all the layers will not be entirely set to 1.1. He feels a very different market from the one that dominated discussions last appointment three years ago.
Welcome home to all delegates and we hope to see you all next year…