Ariel Re says the hardening market requires greater clarity of coverage before January renewals

A hardening market in property-catastrophe reinsurance is a favourable environment for a risk-willing entity, but buyers must be prepared to negotiate tighter policy terms ahead of the January renewals, Joel Willens (pictured right), head of international property reinsurance at Ariel Re, told Intelligent Insurer.

“When I think about what our January 1 renewal is going to look like, there’s going to be a price change. There’ll be a change in the terms and conditions within the contract. And there’ll probably be a structural change in the catastrophic reinsurance programmes.

“Three big things are going to move in the coming months and those will be talked about here in Monte Carlo, just as they are on Front Street in Bermuda and on Lime Street in London,” Willens said.

“We have as a marketplace a number of months now leading up to January 1 to amicably and neutrally agree to terms that work for both parties. We can’t leave the original insurance company without the coverage that it requires but equally, we reinsurers and Ariel Re cannot sell opaque coverage.”

Once a move away from “catch-all” terms and conditions that become acceptable in a soft market occurs, then Ariel Re is well-placed as a “risk-willing entity” thanks to its unique business model, Willens said. That model is having offices in Bermuda, Hong Kong and London, and carrying risk exclusively via Lloyd’s in Syndicate 1910.

Examples of “soft market provisions” that Ariel will not accept include “franchise deductible” and “multi-year coverage”, added Tom Orton (pictured left), property reinsurance underwriter at Ariel Re.

“Our investors have asked us to wall off the uncertainty in the risk we take and a way to do that is to restrict coverage, from one of catch-all ‘perils’, manmade and natural, to a limited list of named natural perils,” Orton said.

“It isn’t necessarily just about the rates; it’s about achieving the clarity of the coverage. So if we’re looking at a European catch-all cover, maybe we’ll limit that to European wind and European flood. And then, in that case, maybe it doesn’t need a rate increase; maybe, actually, it pays less because previously we were including severe convective storm losses and any manmade catastrophe as well.”

There was “substantial hardening” in Florida, the Gulf states and Australia by the mid-year renewal period, Willens noted, and the January 1 renewals “have some catching up to do” since those buyers won’t have renewed their annual programmes yet in the current inflationary environment.

“Another aspect of the hardening market is that there are geographies that may not have had losses in a number of years, who do not yet have their heads around the idea that global reinsurers’ cost of capital has risen. I think reinsurers will require further hardening in almost every geography for property catastrophe reinsurance,” he said.

Willens is confident that Ariel Re “will be on the front foot”.

“We’re going to have very candid conversations with the buyers of reinsurance, and the brokers that mediate these transactions, and say: Ariel Ri is risk-willing under certain conditions: naming the natural perils that the protection will cover; front-running the rising inflationary environment; and describing what our needs will be in each jurisdiction, and so on.

“So we’re going to be on the front foot on what Ariel’s going to require to deliver material capacity, and I think that’s going to be well received by buyers and brokers,” he concluded.