Reinsurers have halted the persistent downward trends of recent years, despite the impact of COVID-19 on working conditions and risk exposures.
The latest Willis Re 1st View report, released after 1 Jan., when many reinsurance contracts are renewed, found that improving investment markets, retained earnings and newly raised capital helped global reinsurance capital levels to recover rapidly during 2020, ending the year 3% higher than at year-end 2019.
“For buyers, terms and conditions have overall been less onerous than initially feared, again revealing the efficient working of the global reinsurance market,” Willis Re said.
Emerging COVID-19 losses, which were often advised only late in the renewal process or are yet to be advised, triggered technical discussions of primary policy coverage and reinsurance treaty wordings.
But both remain in the early stages of deliberation, the report said. As a result, most programmes renewed without considering any potential COVID-19 losses, leaving time for more measured discussions and subsequent adjustments.
In the interim, reinsurers have been unwilling, with few exceptions, to accept ongoing contagious-disease exposures.
James Kent, Global CEO of Willis Re, said in a press release that following the vast economic and social disruption in 2020, it was important to recognise that the reinsurance industry continues to grow in relevance and has the potential to adapt to meet such challenges.
“This was reflected during the renewals process, as the resilience of the reinsurance sector shone through, not just to losses, but to working challenges. Once again, the dynamics of the sector have proved robust on all fronts,” Kent said.
Buyers seeking reinsurance for short-tail portfolios with poor loss records found the renewal demanding, as reinsurers proved reluctant to support aggregate and working layer covers, but appetite for higher, loss-free layers was greater, the report said.
In casualty lines, negotiations of pro-rata treaties were more buyer-friendly because of underlying rates increasing consistently and significantly. In some cases, buyers balanced demands for reductions in ceding commissions by opting to increase net retentions of risks that they now believe are adequately priced. Incumbent reinsurers faced competition from carriers deploying fresh capital, but the continuing and worsening low-interest-rate environment and social inflation impacted pricing on all excess of loss long-tail lines.
The report, which is issued three times a year, noted that property retrocession capacity remained limited, but not to the extent many expected. As some insurance-linked securities (ILS) funds increased their assets under management, traditional reinsurers offered new or additional limit, and some buyers sought to acquire less cover.
Aggregate capacity, however, was more constrained than occurrence, which led some buyers to respond with increased issuance of catastrophe bonds.