Wild volatility in January renewal pricing as composite pricing index rises 10.8% - Guy Carp

Reinsurers shied away from select high-risk business in the January 1, renewal, meaning rates soared; in contrast, rate hikes were dampened in more trusted segments as a flood of capacity competed for business.

That is according to analysts at Guy Carpenter, commenting on the January 1, 2022, renewal. In the event, Guy Carpenter’s Global Property Catastrophe Rate-on-line Index rose 10.8%, more than double the prior year rate, masking wild volatility in rate moves by segment, according to the report: "January 2022: An Evolving market Leads to Divergent Outcomes."

Pricing "exhibited a wide range on a risk-adjusted basis" with non-loss-impacted business ranging from flat to a 7% gain while loss-impacted businesses took rate hikes from "10% to over 30%," report authors claimed.

“The reinsurance market is evaluating a broad spectrum of forces, including climate change, cyber threats, core inflation, social inflation, and the continued evolution of frequency and severity of catastrophe losses," David Priebe (pictured), chairman of Guy Carpenter, said. Reinsurers "reassessed underwriting strategies, resulting in a late and varied price discovery process."

Capacity proved "constrained" on lower layers, aggregates, multi-year and per risk, particularly if loss-impacted, "as reinsurers reassessed risk appetite and inflationary impacts."

Retrocessional and frequency-exposed property as well as cyber aggregate programs were also said to have faced problems generating broad reinsurer engagement.

Reinsurers likewise proved increasingly discriminating by cedent, authors claimed. "Individual cedent differentiation was apparent" in both pricing and capacity allocation, with reinsurers looking twice at everyone's loss experience, claims performance, strength of management, business strategy, perceived adequacy of pricing and structure, and depth of the client relationship, authors claimed.

Much of the split in the market behaviour pushed players to major delays. "The renewal process was later than normal in some sectors including property, lagging up to 14 days behind typical timings for the period," authors wrote.

Reinsurers brought "ample" capacity to the table. Guy Carpenter and AM Best estimate total dedicated reinsurance capital at $534 billion, a 2.8% increase from year-end 2020. Traditional and alternative capital increased 2.7% and 3.7%, respectively.

Guy Carpenter's Global Property Catastrophe Rate-on-line Index is a measure of the change in dollars paid for coverage on a consistent program basis and reflects the pricing impact of a growing (or shrinking) exposure base, evolving methods of measuring risk and changes in buying habits, as well as changes in market conditions.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.