If there was a sentence least likely to be uttered by an underwriter at any Rendez-Vous of the past decade then: “I do feel sorry for those overworked reinsurance brokers” would be high on that list.

Catastrophes inflation

But there is one cast-iron takeaway from this year’s Monte Carlo: cat/all-risk treaty brokers are going to be working over-time in Q4 to complete their clients’ programs at 1.1.

The problem is likely to be most acute in the US, the world’s largest reinsurance market. As a rule of thumb, the US property cat treaty market is in the region of ~$200bn of limit.

At mid-year, the squeeze in cat appetites and rate increases saw 1.6 placements struggle before the near implosion of the dysfunctional Florida market.

Spiralling inflation will mean most cedants will need to buy at least 10 percent more limit just to stand still (hence where the $20bn estimate comes from).

The imperative to buy will be different depending on the buyer. But for some insurers, rating agency models may mean the full additional limit will need to be bought to maintain BCAR levels.

With the impact of inflation this year so far not having been priced into 1 January 2022 renewals, some sources have suggested pricing will have to reflect a “make-up” rate for the missed inflation, as well as factoring in forecasts for 2023.

Some reinsurers have suggested rate increases of 15 percent would only leave them in the same position as before on margins, without adjusting for the risk associated with uncertainty around secondary perils that they argue also needs to be reflected at 1.1.

That could mean expectations of increases of 20 percent or more before any potential major cat activity during the remainder of the year. That eventuality could “break the market”, as one reinsurer CEO put it.

It’s a given that rates will go up – regardless of whether the wind decides to make a late blow – but even at higher prices the distinct shortage of additional cat appetite to match demand means that getting renewals home will require a significant effort.

The acid test will be 1.1, when a significant number of large US nationwide (and of course global and European) treaties are renewed. All else being equal, reinsurance brokers might need to find as much as $20bn of additional limit.

Anecdotal evidence points to Allstate and State Farm looking to buy at least $1bn of additional limit apiece, while other major US-based carriers including Liberty Mutual are also thought to have communicated their need to buy significantly more protection at upcoming renewals.

But, if anything, rather than rise to the challenge, cat reinsurers have stopped pedalling and in some cases have put the brakes on or left their bikes on the side of the road.

3-cat-appetites…

Axis Re has exited altogether, while Markel closed down its reinsurance underwriting unit and instead transferred part of the portfolio to its ILS manager Nephila. Axa XL meaningfully cut back, as did Scor and TransRe – although those reinsurers have all stated their commitment to put down meaningful cat capacity within the redefined appetites.

Where there is enthusiasm it is so far relatively muted. Speaking at a roundtable hosted by this publication in the principality, Swiss Re’s CUO Thierry Léger struck a cautious tone. Some Lloyd’s insurers – including Ariel Re – appear to be “leaning in”, as are a few other markets such as PartnerRe and Aspen Re in a moderate fashion. But caution reigns supreme.

Nor are there obvious signs of a fresh wave of new capacity start-ups other than a few isolated projects (see our article earlier this week regarding former Everest Re reinsurance CEO John Doucette, which anyway is not centred on cat). Investors are also cautious.

So, this is the challenge that reinsurance brokers will be set by their clients. In the US, the placements of the large nationwide accounts are dominated by the “big two” Aon and Guy Carpenter.

Aon’s reinsurance head Andy Marcell acknowledges the task that market conditions have created. Arriving at the Rendez-Vous, he told this publication that part of a successful intermediary’s job was to “create capacity for our clients”.

The optimistic view has to be that more capital will be allocated as we edge closer to 1.1. But it’s going to be a tough one and with it – one imagines – there will be programs where not all layers are fully placed at 1.1. It feels a very different market to the one that dominated discussions at the last Rendez-Vous three years ago.

Safe travels home to all delegates and we hope to see you all next year…