NEWS
Specialty lines have stabilised after turbulence, but challenges remain
Specialty lines may have stabilised, but cedants should not rest on their laurels and must be prepared: Guy Carpenter.
The last year-end renewal was one of the most challenging for decades for the global specialty reinsurance markets, which have endured a turbulent period. A much greater sense of stability now exists in the sector, but cedants should not rest on their laurels and must be prepared.
That is the advice of James Boyce, chief executive officer, Global Specialties, at Guy Carpenter, speaking to Monte Carlo Today. He said the challenges the specialty markets saw were characterised by a combination of macro-economic factors and historical performance issues which drove changing conditions across nearly every business sector.
“I’m relieved to say the situation has become calmer since then, with a greater sense of stability at mid-year renewals, but this remains a challenging market,” he said. “Continued firming rate pressure in key markets sits alongside limited capacity at the lower end of programmes, shifting reinsurer appetite for certain covers, and tighter terms and conditions.
“Finding alignment between insurers and reinsurers for the original risk and reinsurance coverage offered will be essential.
“Our advice to clients is to be well-prepared. The ability to effectively articulate your portfolio and demonstrate a successful underwriting strategy will be a key factor in negotiations for our clients.”
Boyce stressed that market conditions vary by segment. Pricing for non-marine retrocession has stabilised since January, following a period of hardening rates, he noted. The conversation at mid-year renewal transitioned away from one of capacity to focus on price, attachment levels and coverage.
“While we have seen some excess capacity supply at the upper end of programmes, there is evidence of limited availability for reinsurance capacity at the lower levels of programmes. This is especially true for non-modelled or poorly modelled perils.
“Capacity for retro remains uncertain due to fluctuating investor appetite, although we have seen new capacity entering the market. For many buyers the optimal retro strategy in 2024 will be to navigate the widest possible pool of capacity to achieve a more competitive position during placement discussions,” he said.
“Inflation is a major concern for trade credit insurers.”
James Boyce, Guy Carpenter
The energy market faces a continuing challenge from the conflict between Russia and Ukraine, with reduced reinsurance premium levels due to global sanctions.
He said marine insurers are in uncharted waters with continuing uncertainty around vessel movements, but reinsurers have been consistent in excluding losses on land and limiting cover available for voyages and shipping risks within the conflict zone.
“The reality is that renewals for programmes with war, terrorism and political violence exposures are likely to remain challenging as the conflict grinds on,” Boyce said.
“Inflation remains a significant factor for marine and energy re/insurers, driving demand for limit as insured values are reassessed, and adding to repair costs and potential time delays.”
For the aviation and aerospace sector, he said, there remains a strong appetite for reinsurance protection among clients and overall capacity is expected to be sufficient to meet that demand.
“However, the growing divergence between insurers and reinsurers in this class has led to significant rate increases for cat-focused excess of loss reinsurance, while the direct market is experiencing rate reductions in some segments. Claims inflation also remains a concern for both markets,” he added.
Finally, he said, it is a challenging environment for trade credit business. “Overall, the prevailing sentiment has been a sense of realism about rate developments, with insurers more focused on favourable conditions and capacity than price.
“However, despite a general over-supply of reinsurance capacity, concerns about the underlying risk environment mean some reinsurers who typically remain more cautious are reluctant to deploy it.
“Inflation is a major concern for trade credit insurers, given its impact on both costs and exposure growth. We expect Russia-Ukraine to become more of an issue for the market too, as related claims start to filter through.
“We anticipate there will be even greater onus on cedents to provide the maximum possible data, with detailed quality information provided early being indispensable for generating the best negotiating position, and delivering the improvement justified by strong performance.”
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