Stable marine reinsurance renewals expected despite tightening retro capacity

Continued excess capacity in the marine and energy reinsurance market is set to drive a broadly flat renewal at 1 January while retrocession has seen a continued tightening of capacity.

Sources said that marine reinsurance renewals are expected to follow a similar pattern to 2024 with continued oversupply of capacity and little movement on terms and conditions.

This capacity oversupply will be reinforced by what reinsurance market sources described as an “opportunistic” reaction to the Baltimore bridge collapse as certain market players seek to take advantage of any rating impact.

But sources said that any impact is expected to be muted, with rates holding at current levels. Gallagher Specialty has said the P&I market specifically would be prudent to anticipate double-digit rate increases to the International Group’s reinsurance program.

In a recent specialty market update, Guy Carpenter noted that marine and energy excess of loss placements have been largely loss free in 2024 with limited impact from attritional losses.

Quota share, on the other hand, has seen a greater deterioration in performance, Guy Carpenter said. Nonetheless, appetite is said to remain strong.

However, one area that could face greater difficulty is marine retrocession.

Marine retro, which is generally placed at the 1 April renewal, has seen a tightening of capacity, according to reinsurance broking sources.

Sources said that Tamesis Dual’s inability to find replacement capacity at 1.4 2024 – with the firm understood to now only be writing through its Tokio Marine Kiln paper – was one factor driving this capacity reduction.

As a result, a small increase in marine retro rating is anticipated at the next renewals.

This increase could be further driven by greater transparency over Baltimore’s loss quantum by 1 April, which sources said would hit the marine retro market if International Group losses exceed $1.5bn.

But marine market sources said that it was not possible to pin down any exact insured loss quantum from the Baltimore bridge collapse. This view is largely related to ongoing legal action in the US.

Aviation war and PVT complicate marine placements

Marine and energy renewals have also been complicated by potential exposure to aviation lessor claims, as well as the inclusion of war, political violence and terrorism (WPVT) in many composite placements.

Aon said aviation lessor claims – if attributed against 2021 aviation war placements – leave the potential for significant losses. The London trial over aviation lessor claims is expected to begin in October, while hearings in the Irish claims began in July 2024.

Another complicating factor is treaty placements that include a WPVT element.

Aon said that in the event WPVT was included in marine and energy placements “coverage and to some extent capacity” is more challenging.

The intricacy of these composite placements was emphasised in a recent broker account change on a marine, energy and political violence XoL treaty account, which sources said changed lead broker partly on the expectation it would price down significantly.

This account is understood to have been transferred after a request for proposal (RFP) that saw one broker forecast a potential price reduction at the upper end of 15 to 20 percent, according to sources involved in the RFP.

Sources said this price reduction is almost entirely related to a re-pricing of the political violence element of this placement. Indeed, it is understood that marine and energy pricing in the placement is expected to remain largely flat.