The 10.8 percent increase in Guy Carpenter’s Global Property Rate-on-Line (ROL) Index was the biggest seen since 2006 and is likely to be viewed as a good outcome for reinsurers based on expectations going into the 1 January renewal, according to equity analysts.

Reinsurance renewals

As reported earlier today, the reinsurance broker released its renewals report that highlighted a wide range of property cat pricing on a risk-adjusted basis, with non-loss-impacted business flat to up 7 percent, and loss-impacted accounts up 10 percent to over 30 percent.

The average year-on-year uplift, as measured by the firm’s ROL index, was 10.8 percent, and was the greatest increase the index has seen since 2006, according to Wells Fargo analyst Elyse Greenspan.

The Guy Carpenter index now sits at around 221, which is close to where it last was prior to 2014, she added.

The report described market conditions that were bifurcated between non-loss-impacted and loss-impacted programs.

GC property cat ROL

It added that capacity was “ample” for many lines but more constrained for retrocession and some components of property, including loss-impacted lower catastrophe layers and aggregates.

In a note commenting on the renewal, Greenspan said: “Our sense is the 1.1 renewal came in inline with reinsurers’ expectations in December – based on our meetings and discussions with reinsurers including with [Arch] and [Axis].

“Further our sense is the bogey was 10 percent rate for this to be considered a good renewal season for the reinsurers, and the 10.8 percent exceeded that level.”

Other features of the renewal were its lateness, with property business binding around 14 days later than usual, while retro also saw significant rate increases in a tight market for capacity.

Mid-year read-through

With factors including climate change, core inflation, social inflation and the frequency and severity of cat losses driving the 1 January renewal, Greenspan also looked forward to the potential ramifications for other key 2022 renewal dates.

She noted that Guy Carpenter had put trapped capital at about 5 percent of overall reinsurance capital, which had risen from $519bn to $534bn in 2021.

“From recent discussions with reinsurers our sense is that alternative capital has been pulling back from the reinsurance sector – how the level of alternative capital evolves throughout 2022 should determine how the subsequent renewal seasons shake out from here.

“If capital continues to stay on the sidelines, this could cause subsequent renewals to also offer better pricing for reinsurers,” the Wells Fargo analyst commented.

KBW analyst Meyer Shields said he believed the property cat reinsurance rate increases at 1 January were “slightly better” than investors’ expectations.

“While past hard markets’ drastic reinsurance rate increases (e.g., following 9/11 or 2004/2005) didn’t recur (as expected), we are encouraged by the headline property catastrophe reinsurance rate increase,” he commented.

“We believe pressured ILS capital, persistently high loss trends, still-low interest rates, rising retro costs, and imminent S&P capital modeling changes will sustain (re)insurers’ resolve through 2022.”

Reinsurer capital

Shields added that the embedded expected returns aren’t being fully reflected in current Bermuda (re)insurers’ valuations as he maintained outperform ratings on RenaissanceRe, Everest Re, Arch and Axis.

The analysts also highlighted the casualty renewal outcome reported by Guy Carpenter, with cedes on excess casualty flat to up 1.5 points and flat to up 2.5 points for financial lines.

“There was also positive color on casualty renewals, with the underlying rate movement deemed as positive for the reinsurers, although ceding commissions did increase given the stronger results of the business,” said Greenspan.

Shields noted that the movement on cede commissions reflected reinsurers pursuing lines with significant primary rate increases, while cyber reinsurance cedes remained flat despite significant underlying rate increases, reflecting concerns over high ransomware losses.

Despite the positive response from equity analysts, shares in RenaissanceRe were down 1.2 percent, with Everest Re down 0.7 percent, Arch down 0.6 percent, and Axis up by only 0.1 percent at 12.15pm ET.