Negotiations will be nuanced and complex ahead of the 1/1 renewal: Toa Re

There will be no shortage of capacity in the January 1 renewal, potentially meaning downward pressure on pricing, but there could be a scarcity of reinsurer appetite for certain risks, resulting in a further hardening of some terms and conditions.

That is how Michal Suchan, chief financial officer of Toa Re Europe, described the delicate balance he expects in negotiations this renewal season. He stressed that it will be a nuanced picture, by geography and line of business. 

“We are anticipating varying trends across different regions and products,” he said. “The key challenge will be striking a balance that ensures our clients receive the coverage they need while allowing us to maintain a stable portfolio and profitability.”

Suchan added that a key focus will be optimising capital structure and managing different sources of capital to ensure financial stability and competitive pricing. 

“We emphasise the importance of maintaining a well-balanced mix of instruments and achieving clarity early in the renewal process. That allows us to deliver the stability and predictability our clients rely on,” said Suchan. 

“Capital availability will depend on the rising demand for reinsurance.”

That has become easier as some macroeconomic conditions have alleviated. With investment income at healthy levels and interest rates falling, the cost of capital has likewise stabilised, enhancing the overall capital available for future deployment. 

Capital availability will depend on the rising demand for reinsurance, driven by inflation and cedants’ purchasing strategies, he added. That said, in the absence of major losses, he thinks that capital levels will remain adequate and reinsurance pricing relatively stable, although there will be differences by regions and product lines.

Maintaining resilience

Suchan highlighted some other challenges facing reinsurers. One is the rising frequency of climate-related events and the challenges of assessing and pricing them. “In response, our company is continually enhancing our risk models to account for recent loss trends and ensure that current exposure levels are properly represented,” he said. 

“This proactive approach allows us to adjust our capital allocation strategies effectively, addressing shifts in loss patterns and maintaining resilience against evolving climate risks.”

Another challenge is the evolving regulatory landscape, particularly the transition to IFRS 17 which, Suchan said, brings challenges and opportunities. It may take investors time to fully grasp the change, he said, noting that early comparisons with other accounting standards may be difficult. 

The shift could increase volatility in companies’ results in the short term. “On the positive side, these changes may drive new needs among cedants, boosting demand for reinsurance as an effective tool to manage risk and volatility,” said Suchan. “However, it is still too early to fully assess the long-term impact of these regulatory developments.”

The competitive landscape is challenging, Suchan admits, but he says that Toa Re counters this by focusing on clients’ needs. This involves listening to their needs and integrating their requirements into its offerings. “By doing so, we ensure that our portfolio is robust and aligned with the evolving demands of the market, enabling us to maintain and potentially grow our market share even in a competitive environment,” he concluded.

For more news from the Rendez-Vous de Septembre (RVS) click here.

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