The market expected significant improvements in pricing in the run up to the year-end renewals. However, a market dominated by COVID-19 and economic, political, and social factors resulted in some complicated negotiations.
Initially there was a great deal of bullish talk about much-anticipated price increases, according to James Vickers, chair of Willis Re International.
“The big elephant in the room was COVID-19 claims. The industry was aware that this would become a pivotal talking point,” he said.
“Many went to market as early as possible but were met with difficult conversations,” he said.
Vickers made this comment during a panel discussion titled “Renewals 2020/21: did the extent of the hardening meet expectations?” which took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.
As well as Vickers, Johannes Bender, director, lead analyst, S&P Global Ratings; and Mike Van Slooten, head of Business Intelligence, Aon’s Reinsurance Solutions were in attendance.
The panel agreed that the 2020/21 renewal season was characterised by many changes and much uncertainty. One of the biggest changes of 2020 was that the way of doing business was completely revolutionised by the virtual working environment, which demonstrated that re/insurers were able to continue conducting business effectively.
Vickers pointed out that the renewal season dragged on, largely due to exclusionary language, and added that there was a large delta between quoted prices and what came to be in the end.
“This was obviously disappointing given the patchy rate movement over the last couple of years.
“Pricing models from previous years were not sustainable and in future we are likely to see a much more transparent, measured, regulated and sustainable model.
“This will create a much steadier market,” he said.
“Despite the fact that some standard clauses were tough, the industry did manage to stabilise,” he went on.
“There were many differences around the globe: casualty business for example varied by territory. There were rate increases in the retro market but less than expected.”
“We are likely to see a much more transparent, measured, regulated and sustainable model.”
James Vickers, Willis Re International
Long-term view
Van Slooten summed up, saying that renewals started early and finished late.
“Re/insurers did not get everything they wanted, but this market is still improving,” he said.
“There were some very difficult conversations with clients over exclusionary language with lots of variations across the industry,” he said.
He added that the market is likely to see the true impact of COVID-19’s inevitable recessionary period only in the next two to three years.
“The industry has been very resilient, despite the low interest rate and the impact of COVID-19, which demonstrates the resilient capital base of the industry,” he said.
He added that there has been a significant disconnect in industry data predictions, with vastly different figures being presented.
“We are yet to see what the full impact of COVID-19 will be on markets around the globe,” said Van Slooten.
“The changes in the retro market did come as a big surprise,” he said. “There is now more aggregate protection available but at higher cost.”
He added that overall, companies are reshuffling structures to increase retention, but these changes are still modest.
A good product
Bender said that the market had performed sufficiently, and that the virtual working environment was a remarkable step forward for the industry.
“Given the global circumstances, market performance was not remarkable, but it was certainly adequate,” said Bender.
“We may be going into a period of more measured cycles, given the firming rate environment,” he added.
“The market is still an attractive one for investors despite ongoing uncertainty and continuing litigation.
“One aspect of litigation that stands out for me is major event losses, for example in events such as the Olympic Games,” he said.
The panel agreed that while this renewal period has been managed and executed in a satisfactory manner the industry is heading for a complex and challenging mid-year renewal period, given the impact of the recession and the increasing number of claims.
However, for now the market is in a satisfactory position.
“From the buyer’s perspective, the market still has a suitable product, and we are selling a product which is still very much in demand,” Van Slooten concluded.
To view the full Re/insurance Lounge session click here.
Image: Shutterstock / Cryptographer
