Survey: Renewals
A January renewals period like no other
Bermuda:Re+ILS asked readers to share their experiences of the expectations and the realities of the January renewals negotiations in 2021, after a year of COVID-19, social distancing, and talk about the impact of the hardening market.
January renewals in 2021 were unique for being conducted against a backdrop of ongoing social distancing requirements, at least across most of the US and Europe, where many of the clients of Bermuda-based re/insurers are based.
With all eyes on the lookout for more signs of the hardening market, there was a mood of anticipation going into January. But how did reality match up to expectations?
Figure 1:
What were your expectations going into January 2021 renewals?
Nearly two-thirds of respondents to the survey admitted they had expected price rises going into January renewals (Figure 1), with 42 percent expecting moderate price rises but nearly a quarter (23 percent) admitting they had been expecting large rises.
There were significant numbers of people, however, expecting something else, with 16 percent saying they expected prices to remain broadly flat, while a smaller 13 percent were braced for price falls.
One respondent said the market looked oversold, with established companies already having sufficient capital to deploy. Another noted that the expectations depended on the quality of the account, with small rises having been expected for good accounts, rising to larger rises for those that were less profitable, newer, or where the picture was less clear due to mergers or managerial changes.
Figure 2:
How pleased were you with the way January renewals panned out?
Nearly half of respondents said renewals had been broadly in line with their expectations, denying any feelings of disappointment on the one hand, or jubilation on the other, that might be associated with a surprise (Figure 2).
The responses were evenly balanced among those who said things hadn’t panned out as they expected, with 28 percent admitting they felt mildly disappointed with how renewals had gone, but 26 percent saying they were happy—2 percent were people claiming to be delighted.
One respondent, who admitted they had not been directly involved, said: “As an outsider it appeared that expectations and reality came very close together during this cycle.”
Figure 3:
What were the biggest points of contention during January negotiations?
The renewals period is always a contest of sorts. As with all transactions, the interests of the buyer and the seller are aligned to the extent that both want the transaction to be satisfactory for all, to maximise the opportunity for an enduring relationship. That said, a seller wants to maximise the price, while the buyer, naturally, wants to minimise it.
A lot can be learned about the market by examining where the greatest contentions arose in negotiations. In January there was indeed some committed negotiation around price, with 38 percent of respondents citing it as the biggest point of contention, although a larger number pointed to terms and conditions (T&Cs) as being a bigger bone of contention (Figure 3).
Nearly a quarter of respondents (23 percent) said T&Cs specifically related to COVID-19 had been the biggest issue, while a bigger number (26 percent) said the only slightly less headline-grabbing issue of silent cyber had been the main sticking point when negotiating T&Cs.
Another 11 percent said other issues had come up to complicate negotiations around T&Cs, leaving 63 percent in total citing issues around T&Cs.
For all the talk about the declining availability of coverage that is one of the hallmarks of the hardening market, only 2 percent of respondents cited this as the biggest point of contention during January renewals. It could very well have been a significant secondary factor in many cases, however.
Figure 4:
Has the lack of physical contact with clients during this year’s renewals made much difference?
The January renewals in 2021 were unlike those of other years. Renewals in 2020 had squeezed through before the full implications of the emerging virus spreading in China had been digested by anyone but a few more insightful souls in Europe and the US.
If a few executives had any inkling of the problems coming over the horizon, and priced this into the coverage on offer accordingly, they were in a minority, and were at least able to convey this news in person, with all the eye contact and other reassuring body language that was so taken for granted in early 2020, and has become so missed since then.
More than threequarters of respondents agreed that the lack of physical contact between re/insurers and their clients had proved to be a challenge during the most recent January renewals, but for now at least the perceived impact is relatively muted (Figure 4).
While nobody felt social distancing had significantly improved the process, only 3 percent argued it had significantly hampered the process. Nearly one in five (18 percent) respondents said it had made no difference at all.
Only 2 percent of respondents felt social distancing had moderately improved the process, suggesting those who believe 2020 will usher in a revolution in terms of how business is conducted may be disappointed, at least with regard to the impact on the re/insurance industry.
Figure 5:
Do you expect the new capital to dampen the hard market?
More than half of the respondents to the survey admitted that they expect the new capital that has flooded into Bermuda in recent months will offset the hardening of the market a little, although there was little expectation that it would have a big impact (Figure 5).
More than a third of respondents said they expect the new capital to have an impact but only in certain specific areas, while nearly one in 10 respondents said it would have no impact at all.
