Guy Carpenter: Specialty cedants expect rates more in line with risk profile at 1.1

Specialty reinsurance buyers are expected to place equal emphasis on value and price of coverage as they enter discussions over the upcoming 1.1 renewals, according to a report from Guy Carpenter.

The reinsurance broker said specialty buyers will expect to secure coverage at rates that are more commensurate with their risk profile following recent improvements to the performance of their underlying portfolios.

Cedants will be demanding more consistency on wordings, improvements on terms and conditions, and more flexibility on attachment points, Guy Carpenter said.

James Boyce, CEO of global specialties at Guy Carpenter, said the market is now seeing “relative stability” following recent rate hikes, restrictions on terms and conditions, and increases to attachment points.

“Strong rating adequacy has been achieved across many business lines, capacity is available to meet demand outside of a few challenged areas, and there is increasing consistency in the coverage available,” said Boyce.

“Reinsurers have overall achieved a strong performance in the specialty sector, and the market continues to provide opportunities. However, it is important to recognise that much of the turbulence in recent years has stemmed from predicted losses that have yet to materialise.”

While the sector has experienced some sizeable events, Boyce said the market is yet to see the catastrophic financial impacts that have been the basis of a majority of rate increases.

This includes the impacts of the ongoing Russia-Ukraine conflict, as well as the Baltimore Bridge loss, escalating geopolitical tensions, and the remainder of the Atlantic hurricane season.

“Yet, as we approach the renewal period, buyers will have an expectation to secure coverage at rates more commensurate with their risk profile and reflecting the improved performance of the underlying portfolios,” Boyce said,

“They will be demanding more consistency on wordings, improvements on terms and conditions, and more flexibility on attachment points. The value of coverage will be just as important as the price.”

Line of business focus

In non-marine, Guy Carpenter noted that Q2 2024 saw a significant increase in demand for peak peril retrocession coverage and cat on D&F limit.

Demand for retro excess of loss (XoL) coverage also increased following the 1.4 renewals, driven by both appetite from buyers at 1 January for peak peril retro top-up limit.

Following strong results in quota share (QS), more markets are willing to deploy capacity on this basis. However, the report added that in the retro space there is still more demand than supply for QS capacity.

Elsewhere, the marine composite market continues to deal with geopolitical tensions and conflict in Ukraine, the Middle East, and other emerging regions.

“While 2023 was a year of market dislocation, 2024 has seen dynamics settle with reduced verticalisation and increased consistency of product offering,” said the report.

“XoL programs have remained relatively loss-free, with limited impact from attritional losses; while there has been some deterioration on QS performance, overall appetite for marine and energy business remains strong.”

The Russia-Ukraine war also continues to impact the aviation and aerospace segment, combined with the increasing size and volume of nuclear verdicts in the US, as well as increasing attritional losses in the direct aviation market.

“The big question mark hanging over the aviation market remains the Russia-Ukraine leasing situation,” Guy Carpenter said.

“Until respective courts deliver their judgments, both the insurance and reinsurance markets continue to wait on key questions, namely policy coverage, quantum, date of loss and whether multiple lessor’s claims may be aggregated.”

Lastly, in terrorism lines the continued lack of treaty losses from the Russian invasion led to slight softening through 1.4 and mid-year, which saw some placements over-subscribed as clients tweaked portfolios and line sizes.

“Despite upward rating movement in the direct terrorism market in recent years, abundant capacity has now driven flattening rates, while actual losses flowing through to the market have not been substantial,” the report concluded.

“However, the potential threat of social unrest or political upheaval in the wake of global election activity this year is countering the rating trend in certain regions.”