January 1 renewals were expected to be tough, but according to reinsurance brokers in Australia, New Zealand and Asia Pacific, price rises weren’t as steep as initially expected or hoped for by reinsurers. 

Overall, however, negotiations were more complicated and took longer than usual.

John Carroll, head of broking — reinsurance solutions at Aon, notes that some markets have referred to the renewal outcomes globally as ‘underwhelming’. 

‘The final pricing outcomes were impacted by additional capacity into the market,’ he says. 

‘Other factors include the ability of cedants to differentiate the specific risk and exposure metrics of their portfolios, as well as leveraging their longer-term relationships with major reinsurance partners.’ 

Cameron Green, chair of Willis Re Australia and head of its international casualty reinsurance practice, explains that 1/1 renewals were expected to be tough, largely because all reinsurance placements from just before 1 April last year were tough for anyone buying reinsurance in the Australia and New Zealand (ANZ) markets. 

He says reinsurers weren’t quite sure of how they should handle COVID-19. 

‘There was a lot of finding their feet, so to speak. For most of our 31 December business, we went into the renewals fully expecting it to be a continuation of what we saw in April, July and October.’

But in January 2021, Green says more capital was deployed in the ANZ market — albeit in a very cautious manner — than in 2020, when many reinsurers weren’t quite sure what their COVID-19 exposure looked like.

‘In those earlier 2020 renewals, reinsurers went through that process in a very methodical way, trying to work out what they were going to do. That created some need for additional capital,’ he says.

‘RenaissanceRe raised additional capital. Fidelis did a quota share with Berkshire Hathaway and then raised more capital.’ 

In addition to being ready with more capital, there were some new entrants into the market. 

‘Convex Insurance, for example, really came into play probably really for the first time at 1/1 2020 taking advantage of the market dynamics to establish its position on a lot of programs,’ says Green.

The market was also calmer. ‘People had been through some of the issues that were going to confront them at 1/1 and were prepared. Back in July, you had no real idea how the market was going to react, and they hadn’t quite discussed the issues.’

Carroll adds: ‘Globally, capacity was still readily available for reinsurance placements, and we have also seen no shortage of appetite or capacity for ANZ specific placements. 

‘Areas under stress are catastrophe aggregate and frequency protections, mainly because of their poor experience in recent years and the lower levels of modelling sophistication available to price these placements. 

‘Capacity for these placements, however, could be secured but often at significant price uplifts or after some restructuring of covers.’

Carroll, however, notes that the real driver behind the hardening market was not COVID-19 per se. 

‘The reinsurance industry has struggled to meet its cost of capital for the past three to four years and price correction was a required remedial course of action for the industry as a whole.’ 

‘The COVID-19 outbreak and subsequent economic environment impact were the catalysts for this price action to finally be “implemented” in the market.’ 

ALL EYES ON COVID-19 AND CYBER

Both Green and Carroll reveal that at 1/1, there was a significant focus on coverage items, particularly around communicable disease and cyber exclusions. 

‘The stress factor was not so much that reinsurers wanted to take a firm line on these coverage points — it was flagged in advance that this would be the likely outcome — but more that the reinsurance industry doesn’t have a consistent position on the coverage or exclusions that it wants to impose,’ says Carroll. 

‘The number of variations of acceptable clauses made for a lot of work and potential uncertainty for insurers who are wanting to try to align reinsurance coverage with original policy language coverage.’

Carroll says most of the dialogue in ANZ relates to property catastrophe exposed accounts. ‘But casualty classes of business are certainly seeing more dialogue on coverage [communicable disease and cyber] items now and we see this as being a continued focus for 2021 renewals,’ he says. 

Green describes the property catastrophe market as challenging. ‘Unfortunately, part of what’s happened in Australia over the past two to three years is that most of the losses have been from those non-modelled perils, such as bushfire, hail and flood, where there is a very wide range of views as to what the expected cost is,’ he says.

‘On the casualty side, it was simpler. The insurance market is pushing rates up bit by bit, but not necessarily by as much as reinsurers would like. 

There is no doubt that there are losses in the market, but it’s far less than in the property market and there remains a surplus of capacity wanting to underwrite casualty in Australia and New Zealand.  

Perhaps not surprisingly, the main issue in recent renewals has been whether particular client portfolios have communicable disease exposure from certain industries, occupations or risk classifications.’

Green adds that reinsurers for both casualty and property business are looking much more closely at premium adequacy as well as their history with particular clients or geographic areas. ‘They’re verifying what I would describe as the risk selection process that clients have articulated and marking the clients accordingly.’

Premium

You need to login to access this

Login

What are CIP Points? About ANZIIF Membership