The View from Bermuda: 1/1 Renewals 'Reset' The Reinsurance Market
As the dust settles on a hectic 1/1 renewal season, the Bermuda market is catching its breath and looking forward to 2023. On a trip to Bermuda earlier this month, a number of senior leaders told Insider Engage that the renewals were chaotic and underwriters were very busy the week between Christmas and New Year’s, as rates, terms and conditions hardened dramatically.
It was a challenging renewal for the market but our focus remained on building a more thoughtful, well-constructed portfolio, geared towards long term partnerships.
As our sister publication Insurance Insider reported, renewal rates soared and terms and conditions tightened in ‘late, complex and frustrating’ 1/1 renewals. Howden described the 1/1 reinsurance risk-adjusted rate increases as being at a "multi-decadal high."
Tracey Gibbons, Head of QBE Re Bermuda, said: “It was a challenging renewal for the market but our focus remained on building a more thoughtful, well-constructed portfolio, geared towards long term partnerships. We focused on client selection and sustainable structures and to that end we achieved our goal. Rates and coverage varied class to class, but property rates rose significantly.”
The Howden, now Howden Tiger Risk, estimated retrocession rates were north of 50%; direct & facultative were up 45%; and global property catastrophe jumped 37%.
"The convergence of geopolitical and macroeconomic shocks — war in Europe, fractured energy markets, 40-year high inflation, interest rate hikes, depleted capital — as well as the second most expensive natural disaster ever (Hurricane Ian), has introduced significant volatility into the market," Howden said.
Howden’s global property cat risk-adjusted rate-on-line index rose by 37% on average at 1 January, which it noted was meaningfully higher than the 9% recorded in the 2022 renewal and the largest year-on-year increase since 1992, Insurance Insider reported.
“Most of the underwriters are feeling like they're getting dramatically improved terms and conditions… just about every reinsurer underwriter has got sparkling eyes,” said Hugh O’Donnell, CEO, Bermuda Brokers Ltd.
We got rate. We made good progress on improving terms and conditions.
Bermuda reinsurers write just over a third (36%) of the global reinsurance market based on property/casualty net premiums earned, according to the Association of Bermuda Insurers and Reinsurers. The market reported USD$128 billion in global gross written premium in 2021, ABIR said.
“We got rate. We made good progress on improving terms and conditions,” said Kathleen Reardon, CEO of Hiscox Re & ILS. “What we did not see was the $15 billion of new limit that many in the market were expecting during discussions at Monte Carlo.”
Peter Bell, CEO of Everest Re Bermuda, described the 1/1 property catastrophe renewals as a “reset.” He said larger reinsurers may have performed better than smaller players.
“We had more power and clout to help us get what we wanted, and that’s the first time that’s happened in a long time,” Bell said. “That’s partly because we have better relationships with the bigger cedants.”
We had more power and clout to help us get what we wanted, and that’s the first time that’s happened in a long time.
With pricing and retentions increasing in the traditional property catastrophe space, “that created opportunities for us to play underneath the retention for wildfire,” said Amit Shah, chief distribution officer, Kettle.
He said another phenomena of the market was some reinsurers moving away from all risk or all perils policies to price for specific perils. “It’s being a little more transparent in terms of what is exactly covered,” Shah said.
Some have compared this latest renewal season to past hard markets including 1993 and 2001-2002, said Chris Bonard, CEO of Bermuda for Ed Broking. “But in those days, Kemper went bust. Reliance went bust. We haven’t seen those failures. We’re not at that stage.”
Companies are taking a hard look at their profitability, and investors “have become a bit tired of it,” Bonard said. “But there’s still capacity. I think good customers with good data that got in early got a good showing. And I think those that lost money probably got a different showing.”
Capital, Capital, Capital
The dislocation really was in the capital.
Kathleen Faries, CEO at Artex Capital Solutions, said two main things drove the challenging 1/1 renewal season:
“The dislocation really was in the capital. We had traditional reinsurers making the decision to reduce on property cat exposures. And then also had ILS capacity that was either trapped from all the events that have happened leading up to this renewal, or they just revisited their interest in property CAT relative to the returns that they've been able to get up until January.
Dedicated reinsurance capital contracted in 2022. Guy Carpenter and AM Best’s projection of traditional dedicated reinsurance capital was $435 billion at mid-year 2022, an 8% decrease from year-end 2021. Since then, the rise in interest rates and continued risk of recession has caused asset values to deteriorate further, creating additional downward pressure on capital levels, Guy Carpenter said earlier this month.
Investors wanted to know what the terms were before they decided whether or not they were going to jump in, Faries said.
“That caused a delay in a lot of renewal conversations. But now things are starting to flow. The capital started to flow and deals are starting to get done. So I think in the end, there's still going to be a capacity gap, but I think it's looking a little better than it was even a few weeks ago,” Faries said.
This is one of the first markets where the impact is felt throughout all layers of insurance -- from insurance, reinsurance and retro.
Other markets saw rates rise too, including war, terror and political violence. Gibbons noted global recessions, inflation, higher interest rates and supply chain issues were all contributing factors. “The potential for additional claims in certain classes such as these in the next two years is significantly enhanced,” Gibbons said.
“The major events of 2022 have created a lot of dislocation, particularly on the property side, but also on the specialty side with events such as Hurricane Ian and the Ukraine war. These have created additional turmoil and stress in an already depressed market,” said Claude Lefebvre, president and co-founder of Helix Underwriting Partners. Unlike past hard markets, these events have not yet led to large amounts of new capital inflows.
“At the same time, this is one of the first markets where the impact is felt throughout all layers of insurance -- from insurance, reinsurance and retro,” Lefebvre said, adding that this opened the door for “highly attractive opportunities at every level.”
He said financial lines had been softening recently but “we believe this will likely turn in the near future.”