It was well documented and openly discussed in the build up to 1/1/23 that we were collectively anticipating a challenging market going into the new year, due to varied factors such as Hurricane Ian, an active period of prior year attritional losses, financial market uncertainty, the impact of inflation on portfolios, ongoing discussions surrounding climate change, secondary perils, and the ongoing war in Ukraine. These challenges were going to apply to both the reinsurance and retrocession market, with each class of business needing to navigate; all of which would impact the trading environment in Bermuda.
Going in to 1/1 our clients, markets and brokers had questions surrounding attachment levels, pricing, coverage, and overall availability of capacity. However, we remained confident that solutions would be found for clients, given that although clearly distressed, the market largely remained well capitalized. Positive relationships established over years of trading would prove a key component.
The Bermuda Market
The Bermuda market has been a key thought and product leader across P&C for years and we will see this continue and broaden further across Specialty lines into 2023. Best in class talent continues to be attracted to the Bermuda market, which drives the islands' ability and desire to adopt a progressive solution focused approach with its client base.
The brokers’ role has never been more critical in helping clients navigate their respective markets, and their ability to proactively service clients and collaboratively interact with markets proved a performance differentiator.
The property cat and retro market was at the forefront of client’s thoughts navigating this dynamic, but other specialty markets, such as composite solutions, also had had to circumnavigate these challenges. We saw some markets openly operate holistically across their clients’ varied class engagements as they looked to differentiate and construct deals. Equally clients had the ability to use this potential leverage to their benefit in ensuring they were prioritised.
The return of conferences and travel certainly helped markets and clients connect in a meaningful way ahead of the renewal season and as a broker we felt informed and ready for what was in front of us.
We counselled our clients to approach the reinsurance market as early as possible with their desired structures, whilst understanding and pre-empting lead market appetite to deliver best outcomes; meaning we all felt collectively well prepared and had credible contingent plans backed by alternative capacity options.
Property cat is always a focus for the market as a whole and as the renewal season developed, we saw risk adjusted price increases in both the primary and retro market which meant by and large there was enough coverage for clients at a satisfactory market price. We asked markets to be thought leaders and overall, the leads were, through excellent broker engagement and well considered options linked to meaningful capacity. Negotiations of course existed, with some meaningful initial variations in the pricing of quotes received at offered coverage. However, the well informed and prepared clients were able to act fast with their brokers in securing capacity, especially as the primary book materialised towards the end of December.
The makeup of programs was sometimes different with lead markets potentially writing more and many people will now be reviewing programs and looking at any overlap or gaps. There was a bigger focus on terms and conditions through reinsurance and retro, and although clients look for consistency across markets, they recognised the need to work bespoke with their leads in securing critical corner stone capacity. For the remainder of 2023, we believe there will be a continued focus on terms and conditions.
Overall, we feel the market looks healthy going in to 2023, with an adequate supply/demand that remained disciplined and ultimately stable due to the balance of underlying price adjustment, albeit some lower layers remained difficult to place with excess capacity experienced higher up. Many clients retained more risk to keep the value of their reinsurance spend from rising significantly. Ultimately there was a growing sense of comfort towards the end of December and both clients and markets responded well to market conditions. We had imagined more uncertainty in January, but the step change across primary and retro somewhat in tandem created a satisfactory trading environment. As always, there will be opportunities within Q1 to work with clients on further optimising their portfolios through additional purchasing, then attention will turn to the wind season and of course Florida.
Other specialty lines remain growth areas, particularly in Bermuda, for both short and long tail classes, with cyber continuing to be an area of particular focus in 2023. There seems to be growing understanding and comfort from the market for cyber with each new year, which forecasts well for clients looking for more solutions there.
