If the Monte Carlo Rendez-Vous were to take place this month, what would be the major issues discussed? We have consulted with the oracles of the industry and this is our definitive list of the 12 macro themes that are driving CEO thinking. Throughout September, we will examine all of these issues…

12 themes

Hurricane Ida and beyond

Like last year, #ReinsuranceMonth has begun with a major hurricane landfall in Louisiana. The ramifications of Hurricane Ida are still emerging, and the peak period of the Atlantic season could yet bring other meaningful loss events for the (re)insurance sector.

This year is on course to deliver another Atlantic season with storm frequency well above the historical average. While the industry remains well capitalised to respond to these events, reinsurers will be disappointed if they cannot achieve continued rate increases to help pay for losses incurred.

European cat renewals

Reinsurers were left largely disappointed at this year’s 1 January renewals when they failed to secure the hoped-for rate increases on European catastrophe business.

However, recent months have seen two significant loss events hit the region. Firstly a series of convective storms caused insured losses estimated at around €4.5bn.

Then severe flooding hit Germany and neighbouring countries in July, causing losses which some in the market believe could reach €9bn.

As talks begin over January renewals, reinsurers will likely be taking a tougher stance as they look to secure rate increases in the aftermath of a costly run of losses.

With most carriers already ahead of their cat budgets following losses in the first half of 2021 – a situation now compounded by losses from Hurricane Ida – and no sign of improving yields, they will negotiate hard.

Covid-19 recoveries – will the can be kicked down the road again at 1.1?

While test cases have helped deliver more clarity around payouts for Covid-19 business interruption claims, there remains uncertainty about how reinsurance contracts respond to the event.

With a stalemate between cedants and their property cat XoL reinsurers continuing, the expectation is that a number of loss notifications will first come under the scrutiny of arbitration hearings as almost all treaties have such clauses in place.

At last year’s January renewals this issue was ultimately kicked down the road and little progress has been made since then.

Will the impasse continue at 1 January this year? At stake are billions of dollars…

Casualty appetite and the yield curve

Reinsurer appetite for US casualty continued to grow at the summer renewals on the back of rate increases and improved terms and conditions on the underlying business.

The extent to which these improvements continue at 1 January will play a significant role in determining whether this resurgence in reinsurer appetite continues.

If it does, expect to see continued strong capacity support for quota share and XoL, with reinsurers likely to again prefer quota share deals to align themselves with the underlying economics of the business.

With little optimism that yields will return to historic norms any time soon, the focus must remain on profitable underwriting.

9/11 – 20 years on

This year’s #ReinsuranceMonth will mark the 20th anniversary of the 9/11 terrorist attacks on the World Trade Center. The event was a painful one for the (re)insurance sector, with companies losing colleagues and clients who were caught up in the attacks.

The event also had significant financial ramifications for reinsurers. At the time, 9/11 was the largest payout on record for P&C (re)insurers, with losses spanning classes such as property, liability, aviation, business interruption and workers’ compensation.

The rise of ESG

A key focus on the industry agenda in 2021 is how to improve environmental, social and governance (ESG) credentials. A raft of initiatives have been launched in the year to date as (re)insurers look to address the ESG impacts of their businesses and factor ESG considerations into underwriting and investment decisions.

Within this first weekly edition of our #ReinsuranceMonth coverage we explore some of those initiatives and identify some of the early leaders as the industry begins to take steps to reduce its exposure to fossil fuels.

Reinsurance broking realignment

One of the biggest industry stories of the past 18 months has been Aon’s attempted combination with Willis Towers Watson, a deal that was ultimately scuppered after the US Department of Justice launched legal action to block the consolidation. The biggest winner of the affair has ultimately been Arthur J Gallagher, which has secured the acquisition of Willis Re, and will as a result become the world’s third largest reinsurance broker.

Amid the uncertainty sparked by the original Aon-WTW proposition, a host of broking teams have moved between rivals. The continued realignment of the reinsurance broking sector will be an important theme of #ReinsuranceMonth.

Cyber reinsurance pandemonium

Cyber has long been described as the biggest risk and opportunity presenting itself to the

(re)insurance sector. The opportunities for growth are clear but across many companies appetite for expansion has moderated following a string of ransomware-related losses over the past two years. Cyber will be a key topic of discussion ahead of the next round of renewals, with reinsurer concern over loss ratios placing pressure on quota share ceding commissions and aggregate XoL rates.

ILS/cat bonds renaissance – but will it impact cat pricing at 1.1?

The market for catastrophe bonds has continued to thrive in 2021, with issuance reaching $8.5bn during the first half and investor demand continuing to be strong.

Alternative capital remains a reliable source of capacity for sponsors, with several utilising the cat bond market for the first time in 2021.

Competitive pricing conditions in the cat bond space could see more new sponsors emerge in the coming months.

Another virtual renewal…

For the second consecutive year, 1 January renewal discussions will largely take place remotely. Monte Carlo’s annual Rendez-Vous has been cancelled for a second successive year and several US meetings are under pressure amid attempts to control the spread of the coronavirus pandemic.

This dynamic presents another layer of uncertainty to the discussions that will take this month and beyond. Working practices will likely never completely revert to how things were pre-pandemic, but the value of face-to-face contact has become increasingly clear over the past 18 months.

Modelling for climate change

One of the key challenges for the industry is to better prepare for the challenges (and opportunities) presented by climate change.

Demand for tools that can help the economy adjust to the changes that lie ahead will only rise, reflected by the eye-watering $2bn valuation put on risk modeller RMS when it was acquired by Moody’s last month.

Conversations over #ReinsuranceMonth and beyond will examine how the industry can develop tools and services which can provide value both to clients and wider society in adapting to climate change.

Retro

Capacity shortages in the retro market have fuelled upward pricing momentum for the past three years.

Structural changes to retro coverage have also seen a shift from aggregate covers to per risk protection, with reinsurers also obliged to greater retentions.

Loss creep from events such as Hurricane Irma and Typhoon Jebi, trapped capital and the collapse of market heavyweight CatCo – which at one stage held more than $7bn of assets under management – have created opportunities in retro that are likely to persist at 1 January.