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The 1.1 renewal season for 2024 is shaping up to be that of a hard market; however, already some reinsurers are savouring what they say will be a good season.
“With the majority of Hiscox Re [insurance linked securities] business now written for 2023,” said the P&C insurer in its Q3 results announcement in November, “we turn our attention to the January 2024 renewals. We anticipate that the market will remain disciplined.”
Last year’s renewal process was a drawn-out affair, with negotiations lasting several weeks as many battled stress due to inflation and other tough market conditions.
At the time, some institutional investors, including life insurers, said they were seeking to lessen their exposure or had reduced appetite for catastrophic risk, instead preferring to bet on safer options like government-backed securities. Looking to 2024, the pass through of insurance risk to capital markets could be hindered by greater desire for portfolio differentiation and diversification. More capital deployed to alternatives and emerging markets could also be a noticeable trend.
Last year's negotiations dragged on into mid-January, with a report on the market from Gallagher Re saying that there had been a “divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute.”
However, one noticeable positive development for the ILS market in January 2023 was that of European property renewals, which were completed earlier than those for US clients; however, it was still much later than the previous norm, in some instances by as much as a month or two.
“One subdued North American season doesn’t signal that the environment
has become more benign, or that it’s time for a market softening.”
One of the key reasons last year’s renewal season was complicated was the fear of natural catastrophes, in particular the Atlantic Hurricane season. However, the season played out more quietly than usual.
“[2023’s] hurricane season validated predictions of a nearly normal year – with 20 named storms (as of the end of November), seven hurricanes and three major hurricanes,” said Dr Jessica Turner, Head of Risk Analytics at MS Amlin, commenting on the close of the 2023 US hurricane season at the beginning of December.
“However, one relatively subdued North American season doesn’t signal that the environment has become more benign, or that it’s time for a market softening,” she said.
Others have also cautioned against secondary perils, to which some stakeholders have said the reinsurance industry is editing its approach. “The growing occurrence of severe weather incidents in areas not typically known for natural disasters is progressively factored into pricing strategies across the industry,” said Richard Montminy, Global Head of Property Risk at Beazley.
“As the effects of climate change continue to intensify, it is expected that a greater number of these events will be classified as 'unprecedented’,” he said, as one of the key aspects re/insurers should be watching in January’s renewal season.
“The impact of climate change will be integrated into how risk is priced by institutional investors, taking into account that what we thought of as ‘secondary perils’ are now a standalone factor of natural catastrophe exposures,” he said.
Insurers have seen poorer underwriting results this year with many P&C insurers looking to investment results to prop up profits as issues such as inflation and high natural catastrophe costs continue.
However, other areas that could see a high level of change are in certain US lines. “End-of-year treaty renewals will impact Direct and Facultative (D&F) business plans for 2024, with direct writers looking to pass on potential increased reinsurance costs to insureds,” said Gallagher Specialty in its Global Property Insurance Market Update Q4 2023.
The report added that there will be an expectation that D&F carriers will attempt to achieve single-digit to low-double-digit rate increases at a portfolio level.
On top of this, Asia also saw pricing increases. “Despite more orderly reinsurance renewals in mid-year compared to January renewals,” said Gallagher, “markets continue to look for an upward trend in pricing, with catastrophe costs still rising but at a more moderate pace.”
“If investment and reinsurance capacity decrease in liability lines,
the market may move towards even harder conditions.”
It added that additional factors leading to cost increases are ongoing concerns related to the high interest rates and inflationary environment, “which have led to continued scrutiny on the insured values”.
Some stakeholders said they expect the hardening property market dynamics this year to trickle into 2024.
“If investment and reinsurance capacity decrease in liability lines, the market may move towards even harder conditions,” said Montminy. “This type of market and subsequent discipline has rooted out poor behaviour and helped foster behavioural changes amongst primary insurers. Positive growth next year is expected to continue as a result of significant change in the market, and on the back of this change we’ve been able to grow our property portfolios this year."
“Rates will need to naturally shift upwards, reflecting the current
and longer-term trend of climate change impact.”
Montminy added that although market fluctuations will persist on a regional basis, a global trend was also emerging in property markets that were increasingly hardening and moving away from commoditisation. “This shift is driven by the growing impact of challenging secondary perils such as floods, wildfires, tornadoes, and hailstorms,” he said.
“Rates will need to naturally shift upwards, reflecting the current and longer-term trend of climate change impact.”
