NEWS
Cedants seek to bolster panels after 1/1 dislocation: Everest Re
Cedants are having to agree to multiple versions of terms and conditions to secure the capacity they need.
While the run up to the 2023 year-end renewal should be smoother than last year’s, dislocations still exist in the market, with cedants often having to agree to multiple versions of terms and conditions with different reinsurers to secure the capacity they need. Ironing out such issues could be a priority this year as some cedants try to build out their reinsurance panels and increase their overall security.
That is the opinion of Jill Beggs, head of North America Reinsurance, Everest Re, speaking to Monte Carlo Today. She says that the ethos of the subscription market, where a panel of reinsurers share a risk and participate on the same terms and conditions, has all but disappeared since the last year-end renewal, which was very late, highly challenging and dislocated.
“We’ve seen many placements where we have been able to secure our terms and conditions, but they might look different from those of others,” she said. “Some of that might be a temporary situation as the market comes to grips with what terms and conditions they are comfortable with.
“But we did see some of what you might call private placement deals, and differential terms were certainly more common.”
Against this backdrop, however, Beggs thinks many cedants will be seeing new reinsurance partners to bolster capacity, fill gaps in their programmes and to increase their overall security.
“Last year was a pretty dislocated situation where cedants just didn’t want to get to 1/1 without having panels filled out. Many placements were completed with the capacity available. Now, they will be looking to optimise the security, to upgrade those panels. There could be a flight to quality from that perspective in casualty.
“We’ve heard from brokers that clients are looking to upgrade their panel because of social inflation uncertainty; they want partners who they know will be there for them for the long term. We see a similar situation for specialty lines,” Beggs said.
“That flight to quality will benefit us.”
Jill Beggs, Everest Re
“That flight to quality will benefit us. Our clients know we’re there for the long term. We’re growing with our core partners not in just property, but across the board. From a security perspective over the long term, given that volatility and severity we’re seeing, especially in casualty, there’ll be more of a flight to quality to the top tier reinsurers.”
Beggs says that while the market will certainly debate terms and conditions in this renewal, they are no longer the point of contention they were last year. An issue for some cedants, however, is an irritation around how some reinsurers communicated through this period last year.
“At Everest Re last year, we set very clear and consistent expectations early on with our brokers and that drove a very healthy mutual understanding of the direction we were going. That clear communication was appreciated; even though they didn’t always love the message, it actually allowed us to deepen our relationships,” she said.
“Maybe a reflection on last year is more the contention underlying the market right now—around how things were done last year. There could be some difficult conversations with some markets, but I’m pretty pleased with the way that we handled that with our clients.”
A smoother ride
Beggs is optimistic that the current positive pricing environment will continue. She believes a significant capital gap remains between supply and demand, especially in the context of continued natural catastrophe volatility and a heightened risk environment.
“We believe that the market will remain hard into 2024 and potentially into 2025, and that property rates must continue to rise,” Beggs said.
She anticipates a smoother ride for the industry this year. “We expect the 1/1/24 renewal to be smoother than 2023 for property, certainly. The clearing price has been set, terms and conditions have been established and clients and brokers know what to expect. So from that perspective, I think we’ll see a more orderly renewal. But we do expect to see cedants enhancing their panels.”
“The probabilities of more compound events are increasing.”
That said, Beggs admits that some things could derail that. One of these would be a bad hurricane season, which would again cement the concern in the industry that cat losses are exponentially getting worse. She notes that the industry in the past five years has seen twice the number of average annual insured losses than in the prior five years before 2017.
Equally, 2022 was the third most expensive North America hurricane season due to Hurricane Ian.
The property market has reset but she points to the fact that the first half of 2023 has seen a number of bad, and unusual, losses. These include the Hawaiian wildfires, Canadian wildfires, tropical storms in California, and some early hurricanes.
“From that perspective, our message is that rates need to stay elevated and continue to rise. We are seeing an increase in loss costs from construction costs and demand surge if multiple events hit. It is a continuation of why we saw the reset,” Beggs said.
She believes some additional capacity will come into play now that terms and conditions are at an appropriate level. “I don’t expect that’s going to drive the market down in any way. I don’t see rates going back. We still need increased rates, and we need insurer retentions to stay elevated. But hopefully not the disruption that we’ve seen.”
Everest, which raised $1.5 billion in new capital, remains an outlier in terms of new capital. Beggs believes investors are starting to enter the market again, but she also believes decline will prevail.
“There are definitely investors willing to come in now because the market is in such a strong position. That’s healthy and necessary and I don’t see that driving the market down,” she concludes.
Main image: Shutterstock / Gajus