Reinsurers cave in on rate increases in fraught North America renewal

For all the talk of holding the line on much-needed rate increases in this year’s renewals, many reinsurers have caved in, especially on North American risks, as an abundance of capacity continues to compete for business.

That is according to brokers active in the market, commenting on the dynamics in the imminent year-end 1.1 renewal. They say that, while rate increases are being achieved, they are no where near as marked as reinsurers would like, especially in the context of rising claims costs, inflation and the unknown of climate change.

Some risks and cedants have seen more substantial rate increases. Loss-hit accounts have endured a more challenging renewal; equally, certain risks including cyber have seen hefty increases. Reinsurers have also pushed hard to carve out cyber exposure on some treaties, especially on certain casualty accounts.

But for all those brighter spots, the overall trend has been one of reinsurers giving ground on rates, sources say. “For all the talk of holding the line this year, let me tell you that has not happened,” said one senior broker. “When it has come down to it, reinsurers have caved in on rates specifically. They have been tougher on terms and conditions in some instances, but they have not achieved the rate increases they wanted or felt they needed.”

Another broker agreed: “The term hard market has been bandied around in recent renewals; sometimes people refine that term and use the word hardening instead. But let me tell you, this is no hard market. There is abundant capacity and that means that market forces will naturally take their course. People compete for business and the price comes down.”

The new capacity that has arrived on Bermuda in recent years has played a central role in this dynamic, according to the sources. While they acknowledge that it has been more disciplined than in some previous hard markets, partly due to the experience of the executives at their helms, their capacity has still needed to be used – and thus has often competed on price.

But this situation, sources acknowledge, will mean increasing pressure on reinsurers next year – especially if cat losses are again prominent. “The bottom line is that many reinsurers are barely achieving cost of capital now. If claims costs continue to increase that situation is only going to get worse.

“While rate increases will have been achieved in this renewal, in many cases they will barely cover increasing claims costs. On that basis, this issue will not go away and we will see ongoing tensions in further renewals next year.”

All this is despite challenges placing retrocessional capacity, where rates have seen more substantial increases. This means reinsurers could be squeezed in the middle of this dynamic.

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