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January Renewals Saw Some of Sharpest Price Hikes in Recent Years: Howden

2021-01-06 10:29:48
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Lower investment returns, unfavorable catastrophe loss trends, higher loss cost trends, concerns about climate change and, of course, the pandemic merged to cause some of the sharpest price hikes in the recent memory during the January 1 reinsurance renewals, said Howden, the London-based insurance broker.

"The result is not only significantly higher prices, but also tougher terms and conditions," Howden said in a report titled "Hard times. How a pandemic, record low yields and climate-related cat losses have changed the (re) insurance market. "

“With price momentum in both commercial insurance and reinsurance likely to continue through 2021, companies will continue to feel the pressure at a time when many are facing tremendous and potentially existential financial pressures,” the report continued.

The report noted that industry balance sheets remain strong overall and the sector continues to attract substantial new investment capital. "Faced with this background, reinsurers were mostly disciplined and critical on January 1, 2021 reinsurance renewals, predicting similar discipline in the near term."

The main findings of the reinsurance renewal report are:

  • Howden's global risk-adjusted Property-Catastrophe Rate-on-Line index rose 6% on January 1, 2021, ahead of the flat 2020 result and the largest year-on-year increase in more than a decade. The experience of the loss of COVID-19, along with yet another hyperactive natural disaster year, were the main drivers.
  • Programs in North America led the way on January 1, 2021, with an average rate increase of 8.5%. Price pressure was lower outside the United States.
  • A major turning point was reached in Europe, where rate hikes in the low to mid single digit range were observed.
  • Another year of limited capacity in the retrocession market saw Howden's risk-adjusted non-marine repurchase catastrophe index rise 13%. Four consecutive years of price increases have brought the cost of retrocession protection back to the level last recorded in 2012/13.
  • Online accident reinsurance rates, including adjustments for changes in exposure and ceding commissions, increased an average of 6% on January 1, 2021.
  • Rising interest rates on underlying businesses, especially in the US, eased the pressure on ceding commissions somewhat, although results varied according to book performance. Reinsurers were determined to pursue higher prices for excess-of-loss programs, although again there was some degree of differentiation to account for portfolio characteristics and profitability.
Resilient capitalization

“A host of factors have laid the foundation for this year's re / insurance renewals. Despite the asset shock immediately following the lockdown and full-year underwriting losses of US $ 100 billion or more, capitalization has proven resilient. David Flandro, CEO of HX Analytics, said in a statement accompanying the report.

“Established companies and new entrants raised nearly $ 20 billion in all-purpose capital by 2020, with more to come this year. So this is not a universally disrupted market; Differentiated risk management strategies and advice can still unlock access to capacity, even if the landscape has become undeniably more challenging, ”he added.

Systemic risks

The report highlighted the fact that 2020 was a reminder of the systemic risks facing the industry. "The lives of billions of people have been redefined by COVID-19, a global health crisis that has come to a standstill, financial market turbulence, economic disruption and civil unrest," the report said. "The pandemic is a reminder that certain dangers are inconsistent with long-held assumptions about correlations, boundaries and duration."

Another systemic risk – climate change – was highlighted in 2020 – a year when "the frequency of extreme weather events pushed the boundaries of a historic precedent," the report said.

"While the pricing environment may be favorable for carriers in 2021, it should not translate into a degree of risk aversion where insurers accept the interest but avoid new risks or new business," said José Manuel González, CEO of Howden Broking Group, in a statement.

“The global risk landscape is changing like never before. Carriers and brokers have always served their clients best by learning from shock events and 2020 is certainly a year rich in lessons. There is much to draw upon: COVID-19 has portrayed the growing "intangibility" of risk, a trend that will only accelerate as new technologies continue to redefine risk attributes, "he added.

Source: Howden

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