European cedants face up to a tough renewal ahead

While Hurricane Ian’s impact on Florida has dominated headlines in recent weeks, European cedants have their own challenges to deal with ahead of this year’s 1 January renewal season.

For many years European cat/all risks renewals were a relatively straightforward affair, with generally benign loss experience and ample capacity making for a satisfactory outcome for buyers.

But no more. In 2020 we had Covid-19, while 2021 saw Storm Bernd and Europe’s costliest ever floods and this year already includes the €6bn+ French hail storm loss.

The market was firming even before the May/June hail losses, as evidenced at last year’s 1.1 renewals. As David Flandro, head of analytics at Howden, noted at a recent roundtable hosted by The Insurer, 2022 was the first time in years he had seen “serious backbone’’ from European reinsurers.

Fast forward to this year’s renewals and pricing momentum has, if anything, accelerated. It is a point Acrisure Re CEO Simon Hedley noted in Monte Carlo last month. While there were widespread rate increases at the last 1.1 renewal, some reinsurers “felt they didn’t quite get what they wanted”.

“They will be targeting to make that up at 1.1 this time,” he predicted.

Prior to Ian, there was little indication of any reduction in cat appetite among three of Europe’s four major reinsurers. 

German reinsurers Munich Re and Hannover Re were both perceived to be approaching 1 January with no outright intention to reduce exposures, while Swiss Re hinted it might grow into 2023. Of the big four, only Scor has cut back its cat appetite. 

As Aon’s regional management highlight in today’s edition, the challenge for European cedants may be more around price and structure than a lack of capacity. Reinsurers will also be looking more closely at coverage terms with greater emphasis on named perils and exclusions. 

Inflation will also compound these challenges. Guy Carpenter’s David Priebe estimates increased limit demand from primary companies will be somewhere in the region of 10-15 percent. 

With reinsurers pushing hard for more rate, there will be questions asked around whether it makes sense to continue to buy volatility protection at certain levels.

Perhaps the big factor in determining the ultimate outcome for European cedants at this year’s 1.1 will be the success the major brokers have in developing alternative solutions.

As Tomas Novotny, co-CEO for EMEA at Aon’s Reinsurance Solutions unit, explains in today’s edition, the broker is exploring regional solutions similar to the facilities it has used in the past, where part of its portfolio is written on an automatic basis.

As previously reported by this publication, Guy Carpenter and Gallagher Re are also exploring potential facilities for 1.1.

It will undoubtedly be a tough renewal for cedants. The extent to which major brokers are able to successfully pull together these capacity solutions will be a factor in determining just how tough it is for some cedants…