You can’t always get what you want: US renewals

“Frustrating but ultimately fine”: that’s the verdict from at least one broker following the 1/1 renewals in the US and North America.

T. Kael Coleman is the founder and chief executive officer of re/insurance broker Protecdiv. Founded in December 2018, it aims to combine traditional trust-based advisory relationships with the best of modern data management and data analytic tools.

As he told Intelligent Insurer it’s the first part that was the challenge this renewals season. Coleman was joined in a discussion by Ari Chester, head of US and Canada reinsurance at SiriusPoint, and John Huff, chief executive officer of the Association of Bermuda Insurers & Reinsurers.

A call for candid conversations

According to Coleman, there were three types of reinsurers evident at the renewals. First, those committed to their client partnerships, who even in the harder market, while looking for higher rates, worked hard to accommodate long-standing clients.

For a variety of reasons, others were reducing exposure in certain lines. “But they were very transparent about it,” said Coleman. “Both of those types of reinsurers are great because you know where you stand.”

It’s the third kind that causes the frustration: those that claimed to “draw a line in the sand” in November or early December, insisting that without a specific rate or changes in terms and conditions, they would have to come off programmes—only to relent at the 11th hour and take the full line.

“All of a sudden, the programme that you were scraping to get home is now 120 to 130 percent subscribed,” said Coleman. That’s not completely new in negotiations where reinsurers are keen to push rates, and cedants resist, but there was more of it this season, he said.

It’s a fair characterisation, according to Chester. Parts of the market were distressed, he said, with working layer property, for instance, hit by secondary peril and attritional losses.

“We did have a preference for occurrence,” he added. SiriusPoint looked to reduce its binder business, and to move from broader worldwide coverage to narrower, regional covers.

However, it tried to be upfront with brokers early on—and was ultimately rewarded.

“In our first meetings, they said we were coming off pretty strong,” he said. “Later in the season, they came back and said they appreciated us being upfront and that, since then, several other companies had come forward and said the same thing.”

Not quite there: rates fall short

The frustration was not all one way, however, Chester added.

“We think that in some cases the rate movement was not enough,” he said. “It’s everything from climate change, the extra load we needed to put in for attritional and secondary peril, and then the claims inflation. We saw a need in some cases for an extra five or 10 points. That’s a big deal.”

“There were a lot of risks where we just didn’t see adequate pricing,” he added.*

Huff agreed, saying: “The headlines for the 1/1 renewal would be that we’re in a rate growth environment, but we still have a way to go on rate adequacy.” The busy cat year and concerns over climate change and secondary peril certainly informed discussions.

“Events such as Hurricane Ida in August 2021 made the market even firmer for the 1/1 renewals. We just had brand new data from the Bermuda Monetary Authority, and the cost of Ida for the Bermuda market alone will be over $6 billion. That’s a hefty number.”

Social inflation on casualty lines and general inflation were further concerns.

“You think of social inflation hitting casualty lines, the uncertainty over the impact of the pandemic and the changes in perceptions of what the value of a claim may be, but it’s also about social inflation on the property side,” said Huff. “We see it in Florida in particular and will watch that very closely for the mid-year renewals.”

The cost of uncertainty

The point is not that issues such as social inflation will prove a problem, added Chester: federal caps on punitive damages relative to compensatory, for instance, have helped. On the other hand, there are more “nuclear verdicts”, litigation funding and the risk of populism that could all make it worse.

“Time will tell, but it’s something we’re looking at very carefully,” he said.

The point is that without the uncertainty over this and other areas such as secondary perils and climate change, it could have committed to more programmes. “The current rate increase was getting to about where we would need to be,” said Chester. The uncertainty, however, put many just out of reach.

“On many deals we were looking at, if we had five or 10 or 15 more points, we could have done them.

Most were done somewhere, however, and Coleman admits that reinsurers did temper their demands. “The rate increase was a little more muted than reinsurers would have hoped maybe back in October,” he said.

“Cedants would never say this, but they were probably a little happier than they thought they might be a couple of months ago.

“Most market participants agreed the market moved in the right direction, but there’s always going to be a debate about what the quantum of that move should be.”

The continued uncertainty over rising losses and claims means it’s a debate that will continue.