• 2021 cats to put upward pressure on European rates at 1.1
  • GDV now estimates worst ever year for German nat cat losses following summer floods 
  • Working layers and agg covers with losses will again feel most rate pressure (recall: European cat rates nudged up at 1.1.21 after sluggish previous years)
  • European reinsurers looking to restrict coverage to named perils at 1.1 to match their own exposures to their retro protection
  • GC urging cedants to resist; European head reminds traditional reinsurers that all risks cover differentiates them from ILS
  • Panels expected to be broadly stable but some “class of 2020” start-ups/reboots will enjoy success in growing market share 

Speaking exclusively on The Insurer TV as part of #ReinsuranceMonth, Reina also warned reinsurers that Guy Carpenter would strongly resist on its clients’ behalf any attempts to shift coverage from all risks to named perils at the renewals.

Massimo Reina – GC

After last year’s 1 January renewals were characterised by reinsurers’ across-the-board determination to exclude communicable disease, Reina said there were early signs ahead of proper negotiations that reinsurers will try to narrow coverage yet further to named perils.

The change would “undoubtedly help reinsurers who are keen to align the business they write with the retro protection they buy, which is always on a named peril basis”, explained Reina. 

However, he warned reinsurers against pursuing the move as all risks cover is “one of the most valuable things they offer their clients” and reminded them that the willingness to provide broader cover is a clear differentiator between traditional reinsurance and alternative capital, such as ILS.

“[It is] a very important barrier for different and newer sources of capital to enter the traditional reinsurance space. We at Guy Carpenter continue to advise clients to hold firm against any attempts to change the basis of coverage to a named peril basis,” Reina explained.

He acknowledged that recent cat events – including the July flooding in Germany and neighbouring countries and the $20bn+ Hurricane Ida – will put pressure on European reinsurers to maintain pricing momentum and, importantly, underwriting discipline at 1 January.

Massimo Reina, CEO, Europe, Guy Carpenter

Last month, German insurance association GDV again hiked its estimate for the flood loss to a new high of €7bn ($8.3bn) and warned that 2021 was likely to be the worst year for nat cat losses in the country since records began. 

As a consequence, “lower level layers and aggregate covers with high loss frequency will again be targeted by reinsurers for price increases”, Reina predicted in his interview with The Insurer TV editor Sophie Roberts. 

However, he caveated this by noting that in a market where “capital is still abundant … and where many reinsurers are talking about their own growth plans … this will mitigate attempts to push rates above a certain level”.

Guy Carpenter will also, he added, be using its analytics and modelling capabilities to examine cedant exposure levels closely to ensure all rate movements are legitimate.

Assuming reinsurers are reasonable in their rate assessments, Reina expects European cat panels to remain “quite stable”.

“Most clients always make an effort to maintain continuity of their relationship with their key partners [and] considering the recent loss activity this will apply even more this year than it has in the past,” he predicted. 

However, Reina noted that a number of newer reinsurers were showing a determination to grow their share.

“Some of the new entrants in the market are very determined to take the opportunity to build a position in a region which has produced profitable results over the cycle.”

He added that these firms are “extremely experienced and [have] put together teams of underwriters with strong client relationships and good knowledge of the market. Of course they will not manage to provide a full alternative to the more established players but they will be successful in our opinion in building interesting new positions wIth some key cedants”. 

Although Reina did not identify any of the newer entrants, Convex, Fidelis and Lloyd’s (re)insurer Ark are three firms that are often cited by market sources as having a distinct growth appetite in European reinsurance.

The Insurer comment

Massimo Reina is always great value for his concise insights into the European reinsurance market and this 12-minute interview is very much worth watching…