Welcome to Baden-Baden…

There are few certainties in life. Death, taxes and a new British prime minister every month. But we can add to that short list the key themes at this year’s event: the availability, terms and cost of reinsurance capital in 2023. 

It is a subject The Insurer’s on-the-ground team of reporters and analysts will focus on over the next few days. We hope you find our coverage valuable as European reinsurance buyers navigate a 1.1 renewal that will be the most challenging for 20 years. 

But if you’re reading a hard copy of our Day One edition, the chances are you will be attending the Guy Carpenter Reinsurance Symposium. 

The title of this year’s Kongresshaus event is “Rising to the Exposure Challenge”. It is highly topical because it touches all of us involved in reinsurance: namely, how does the industry continue to be relevant by providing meaningful capacity, knowledge and risk transfer to its clients in a fast-changing and uncertain world. 

It is a fact that almost all European reinsurance buyers will be paying more for their coverage at 1.1. There are a multitude of factors why, including rampant economic and social inflation, the increased cost of capital, war in Europe and political uncertainties.

“This settled position dissolved at last year’s 1.1 renewal. It will be under even more pressure this year”

But another year of above-average insured cat losses is also a key driver. According to one estimate last week, the first three quarters saw $99bn of cat losses. Hurricane Ian, of course, is the biggest culprit but European reinsurers are still counting the cost of France’s largest hail loss on record in Q2 (€6bn+), and for that matter Europe’s most expensive flood loss last year.

It used to be that buyers would attend Baden-Baden and patiently listen to reinsurers complaining about storms and wildfires in the US, typhoons in Asia or Australian floods before pointing out the geographical obvious: these were losses in another continent. Why should we be penalised, they would respond.

It was a fair point and probably explains why European cat/all risks reinsurance rates were sluggishly soft-stable for many years. This settled position dissolved at last year’s 1.1 renewal. It will be under even more pressure this year.

But the dilemma for reinsurers is properly pricing capital to reflect the risk but also to ensure it remains affordable for its customers. This isn’t a new dilemma, of course, but it is magnified when it comes to emerging risks where there may not be sufficient loss data or even cat risk, where there is a multitude of data but huge uncertainty over the impact of climate change on its applicability.

One outcome is likely to result in reinsurers looking to narrow coverage terms. This reduces the impact of the rate increase in nominal terms to the buyer while providing an acceptable risk-adjusted increase to the seller. Potentially, it could even see a return to named perils and an unbundling of the cat/all risks product. Reinsurers would be pleased with such an outcome. Buyers and their brokers less so.

In other words, there is lots to play for over the coming weeks as we prepare for a bruising 1.1 renewal process that could go to the wire…