- An earlier start to the renewals
- Slower and more complicated quoting process
- Rigorous contract reviews
- Later-than-average signing process
- Significant pricing pressure for loss-impacted programs
- Pricing for loss-free programs in line with expectations
- A varied renewal experience depending on underlying portfolio exposures and performance
“2020 has been a year like no other,” said Peter Hearn, CEO of Guy Carpenter. “It has seen our industry take the strain of unparalleled uncertainty in the loss environment and the broader economy, all while working under conditions throughout the year we have never experienced. Yet despite these pressures, the reinsurance sector has performed admirably throughout a lengthy renewal process.”
“We are focused first and foremost on client needs and working with our reinsurer partners to achieve the best possible outcomes for clients,” said Dean Klisura, president of Guy Carpenter. “We truly believe that the unique challenges our market has endured have served to strengthen the bonds we have throughout this industry as we all respond to this extraordinary period.”
The quoting and firm order process was more complex this year than in recent years, especially for stressed geographies and business lines, Guy Carpenter reported. In addition to rate and structure considerations, negotiations focused heavily on contract wordings, with communicable disease and cyber exclusions being two of the more prevalent topics.
“This wide range of views on contract language and structure options drove increased non-concurrencies as compared to typical recent renewal years,” Guy Carpenter said.
However, the early distribution of submissions into the market meant companies were able to effectively manage the slower quoting phase.
Pricing generally landed at the lower end of expected increases outside of more constrained segments at the January 01 renewals, Guy Carpenter said. When placements were loss-impacted – especially in cases where retentions were perceived to be too low – reinsurers held a harder line on pricing or structure adjustments.
Global property renewal themes included:
- Ample capacity was available from incumbents and new entrants to the property reinsurance market during the fourth quarter
- Limit demand was generally stable, with a few pockets of increases
- On non-loss-impacted programs, risk-adjusted pricing was up from the mid-single digits to the low teams in the US, while it increased by low single digits on average in the EMEA and the Asia-Pacific region
- Known global large losses were higher than average last year, excluding COVID-19. Losses were driven by frequency of small and mid-sized events
- Based on current market views, loss implications from COVID-19 were not as disruptive as first feared
Property retrocession renewals were closely scrutinized, as some observers expected significant hardening market impacts. However, rate movements on non-loss-impacted programs weren’t as significant as many projected and continued to moderate closer to January 01.
Communicable disease exclusion wording was a key discussion area on every property renewal worldwide, Guy Carpenter said.
Casualty renewals varies widely depending on individual circumstance, the company found.
“Every placement experienced some degree of continued reinsurance underwriting rigor around stress factors broadly encompassed by social inflation, the low interest rate environment and communicable disease,” Guy Carpenter said.
Global casualty renewal themes included:
- Pricing was heavily dependent on the stress factors mentioned above
- Amble capacity was usually available across most casualty lines
- Some programs with more challenging loss experience or industry classes aw additional pressure on other treaty terms and conditions and pricing
- Financial lines bucked the casualty market trend, with stable or improving terms due to the strong underlying rate environment and continued carrier underwriting discipline
- Cyber aggregate capacity saw continued tightening, which drove increased pricing
- New or expanded client interest in casualty clash coverage
Traditional dedicated reinsurance capital for year-end 2020 was estimated at $397 billion by Guy Carpenter and AM Best, a slight increase over year-end 2019. Capital levels recovered from the decline seen at mid-year 2020 thanks to favorable valuations of asset levels and capita initiatives.
“However, reinsurers struggled to achieve positive returns on equity due to the combined impacts of COVID-19 and catastrophe losses,” Guy Carpenter said.
“While there is no doubt that in 2020 the reinsurance market was impacted on multiple fronts by property losses, COVID-19 and continuing strain in the casualty market, it is a credit to the financial robustness of our marketplace that reinsurers were largely able to navigate through these challenges, respond to changing conditions and define market strategies for management and investors,” said Lara Mowery, global head of distribution at Guy Carpenter.