Millette: “Stunted” retro market rollover expected at 1.1.23
Another “stunted” rollover in the retro market at 1 January 2023 is expected and will impose further capacity constraints at the 1 June renewal, Hudson Structured Capital Management’s co-founder and managing partner Mike Millette has warned.
In a recent interview with The Insurer TV, Millette spoke of how “integrated’’ the January and June renewals are and that what has taken place in 2021/22 will continue into 2023, with dynamics becoming even tighter.
“Supply [and] demand broke down last year,” he said.
“What we saw was a substantial increase in price from the year before and some reinsurers paid it, and some clearly decided that they were better off just shrinking their inwards books at mid-year. So there was what I will call a stunted rollover at year-end 2021 and the corollary to that was a capacity crisis in June 1 of 22,” Millette explained, predicting a similar course in 2023.
In a recent report on the sector, Guy Carpenter said that the hardening pressures in the property retro market seen at 1 January have been sustained through 2022, with capacity for aggregate and low-attaching occurrence layers remaining tight in contrast to less supply constraints for layers further up the tower.
“I think we’re going to see another stunted rollover at year end 2022, and what that promises is there is going to be a difficult capacity situation continuing through June 1.
“The January and June markets are very integrated and I think that we need to keep that in focus – it isn’t one or the other,” he added.
As previously reported, conditions were expected to be tight even if the 2022 hurricane season ran clean amid a challenging fundraising environment for ILS funds providing retro capacity.
The availability of aggregate products was already scarce, with mounting pressure on occurrence limit as the need for retro cover was expected to rise to support reinsurers facing increased demand for cat reinsurance capacity.
The arrival of Hurricane Ian late last month has only exacerbated the capacity crunch, with estimates that around 30 percent of ILS fund collateral will be trapped amid uncertainty over losses from the storm.
The expectation was that a tight market would see retro capacity – where it was available – be priced up at least 40 percent.
In the latest 15-minute Close Quarter interview, Millette examines:
- ILS capital: what changes it will demand
- The impact of trapped capital
- 2023 retro market
- Prospects for a cyber 144A cat bond