Welcome to Baden-Baden 2023

As we begin this year’s Baden-Baden discussions, much of the focus will again be on the mounting catastrophe bill facing the industry, with 2023 set to be another $100bn cat year.

This shouldn’t come as too much of a surprise to those who have been closely following trends over the past few years. As Gallagher Re has noted, the average nat cat insured loss total over the past decade stands at $112bn, demonstrating that $100bn+ loss years have now become a “new normal” for insurers.

What is surprising is that this year the $100bn threshold looks set to be reached without a major “primary” event, with US hurricane losses notably making only a small contribution to this year’s loss bill, despite an active season.

Instead, the losses have been accumulated through a series of “secondary” peril events, most notably severe convective storm losses in the US, which Gallagher Re estimates have cost a record $54bn in the first nine months of this year.

This accumulation of losses has not been limited to the US – as Munich Re highlighted in its media briefing in the run-up to this week’s Baden-Baden meeting, Europe has seen at least seven events with insured losses over €1bn ($1.06bn) since the start of the year.

These include the costliest industry catastrophe of the first nine months of 2023 – the 6 February earthquakes in Turkey, which are expected to result in losses of $5bn to $6bn.

It is notable that the $100bn loss threshold is likely to be breached without the aid of a double-digit billion dollar hurricane or earthquake event. Given the scale of this year’s attritional losses, questions will continue to be asked as to whether now is the time to retire the term “secondary perils” from the industry’s lexicon.

Addressing volatility

Questions also remain around reinsurance structures and how the sector can meet the needs of its clients in addressing this volatility. The widespread push by reinsurers to increase attachment points has left primary carriers absorbing a higher proportion of this year’s losses than has traditionally been the case – a factor demonstrated again by the early reporters in the Q3 earnings season.

Both Munich Re and Swiss Re have publicly stated that they retain an appetite for nat cat risk ahead of this week’s meeting, but it is clear that reinsurers are not about to give up the gains achieved at recent renewals, particularly around attachment points and coverage terms.

Upcoming European property cat renewals are expected to be largely flat following rate increases at last year’s renewals. The exception is likely to be Italy, which saw flood losses in Q2 compounded by a record hail loss in July.

As a more localised market, Italy has to date avoided the rate increases seen across other European countries. This will likely change at 1.1.

Casualty concerns

While property cat continues to dominate many headlines, casualty concerns remain, highlighted by the fact Swiss Re may have to bolster its back-year reserves by $2bn this year.

Swiss Re was among several reinsurers to note concerns around casualty during the recent Rendez-Vous in Monte Carlo, amid significant deterioration in loss ratios on underlying business.

Lloyd’s chief of markets Patrick Tiernan echoed these concerns during his Q3 market message, highlighting how the casualty market now has an “eerily familiar” feel when compared with the property market of 12 months ago.

While reinsurers’ focus for this year’s property renewals will largely be around maintaining the ground achieved at recent renewals, from a casualty perspective there will likely be a big push both on rate and terms in order to stem the recent deterioration.

The Insurer will bring you full coverage of how these discussions evolve as they continue over the coming days and in the run-up to 1.1.