After years of stagnating pricing the European property catastrophe reinsurance business is in sharp focus ahead of the 1.1 renewals despite the absence of significant losses in the region in the first half of 2020.
The class – which until now has been largely immune from the reinsurance rate increases seen in the US and Japan – looks set to be a hotly contested renewal as European buyers and sellers battle it out.
At the 1 January renewal this year, reinsurers walked away largely disappointed after unsuccessfully pushing for rate increases on European property cat business as cedants successfully argued that their accounts had run loss free and should not be punished for loss experience in other regions of the world.
But with the Covid-19 pandemic adding further challenges to an already distressed reinsurance market, carriers are now presenting the case that it is a global cat market with a single pool of capital, the cost of which has gone up.
Industry heavyweights have been opining that rate momentum witnessed in the US, Australia and areas of Asia will begin to be mirrored in European nat cat business at 1.1.2021.
Yesterday, Hannover Re forecast “material hardening” in European nat cat business at 1.1, against a backdrop of low interest rates and industry losses from the Covid-19 pandemic which it said were on a par with 9/11 or Hurricane Katrina.
“It’s been a buyers’ market for a number of years and rates have declined for that period… But we are seeing some catch-up”
Hannover Re CEO Jean-Jcques Henchoz
Hannover Re has said 2021 P&C rate increases are “absolutely essential” with Covid-19 set to fuel pricing momentum in Europe at the upcoming 1.1 renewal despite the region being spared from large natural catastrophe events.
“With Europe currently being a centrepoint of the Covid-19 impact on the insurance and reinsurance market, material hardening is expected for 2021, particularly for those accounts that sustain significant losses from the pandemic,” Hannover Re said.
Renewal commentary released by the ‘big four’ reinsurer yesterday echoed comments made by chief executive Jean-Jacques Henchoz on The Insurer’s The Best Policy podcast earlier this month.
“I think the price momentum will gain in 2021 and will also affect the European market, which is beginning to get rectified,” Henchoz said.
Henchoz said the European reinsurance industry has experienced years of margin erosion, which the market is keen to correct.
In part down to the low nat cat loss event and part to do with the “ample capacity” in the market, prices have remained low and inadequate for some time.
“It’s been a buyers’ market for a number of years and rates have declined for that period,” said Henchoz. “But we are seeing some catch-up”.
“We’re seeing many brokers giving clients the expectation of flat… I believe that flat is unrealistic”
Scor Global P&C CEO Jean-Paul Conoscente
Speaking on The ReInsurer’s latest virtual panel debate, Scor’s Jean-Paul Conoscente said going into 2021 renewals he expects to see “an acceleration of the hardening in Europe”.
Conoscente said that the sustained low interest environment as well Covid claims would likely drive rate increases in Europe, although noted that the US was expected to once again lead the market in terms of percentage increases.
The Scor Global P&C CEO said that he was aware of conversations between European clients and their brokers, who are being advised to expect flat renewals, which he deemed “unrealistic”.
“In Europe we’re seeing many brokers giving clients the expectation of flat – I believe that flat is unrealistic,” Conoscente said.
At Scor, Conoscente said the carrier would be looking for high single digit to low double digit rate increases on European business at 1.1.
While July is a limited renewal for European business, Conoscente said Scor had witnessed “significant price increases” for the European programmes that did renew at 1.7.
“That may not be a good illustration for the entire [European] market but it is a sign of the trend we expect to see.”
The Covid impact
While the majority of reinsurance broking sources canvassed by this publication have conceded that prices are not going down at 1.1 for European nat cat, they have pushed back on suggestions that reinsurers will achieve double digit rate increases.
But while precisely how much rate is likely to be clawed back by reinsurers is a point of contention between buyers, sellers and their intermediaries, the fallout of Covid-19 on the industry is also expected to play a significant role.
Massimo Reina, CEO of Continental Europe and MENA at Guy Carpenter told this publication that Covid-19 – and buyer’s exposure to claims emanating from the pandemic – would lead to a shift in the narrative around 1.1. European property cat renewals.
“For the January renewals we expect negotiations will include more focus on systemic risks and less on pricing,” Reina said.
“We expect the forthcoming renewal for Cat business in Europe to be challenging where there are potential covid claims: Covid-19 has highlighted inconsistencies in contract wordings and discussion around claims recovery,” Reina add