EMEA’s reinsurance outlook: smoother renewals expected but dislocations still exist

MS Reinsurance’s Jörg Bruniecki examines the outlook for the EMEA region.

How would you describe current market conditions?

The recent CIAB Insurance Leadership Forum highlighted that US casualty is a major theme. Looking back to the last renewal, the casualty line of business was often seen as a desirable diversifying class. However, this has now changed, and commissions on proportional treaties should come down significantly in the US. International casualty also needs remedial work.

We are especially concerned about the trends we see in the D&O and financial lines arena, where the falling original rates do not reflect the trends we see in loss cost development. Social inflation, economic inflation and fundamental changes in societal behaviour are the reasons behind this.

Furthermore, the balance between supply and demand continues to be a prominent topic and we note that the balance has not and will not shift meaningfully before year-end. Very limited capital has entered the industry and some of reported capital is still trapped by prior year losses.

2023 continues to be a very active year for nat cat losses, and the pressure to get to risk-adequate prices therefore remains unchanged.

What measures have reinsurers taken to mitigate current uncertainty and risk?

In the US, cat prices are considered to be closer to risk-adequate levels; however, the expectation is that they will continue to go up on a risk-adjusted basis.

In Europe, the need for correction is much higher – while there was a correction last year, the atmospheric perils continue to show their increasing impact and earthquake risk has shown what it can do in Turkey and Morocco.

In addition to increasing the accuracy of pricing for secondary perils, inflation remains a constant feature, although supply shock-driven disruptions are exacerbated by wage/price-driven inflation kicking in.

These changes in the underlying drivers mean we’ll see impacts spread to all lines of business. Casualty lines will be especially affected by wage-driven inflation. Ultimately, this serves as a reminder for reinsurers to price in a risk-adequate way and that retention levels need to continue to move up in-line with inflation.

What are reinsurers’ expectations in the lead-up to 2023 year-end renewals and what are reinsurers hoping for the new year 2024 renewals?

While the run up to the 2023 year-end renewal should be smoother than last year, dislocations still exist in the market. Last year’s dislocation has normalised somewhat as (re)insurers have made required changes to programme structures, and risk adequate pricing becomes better understood by all parties.

It's true that many relationships have been tested this year, and clients will remember how they were treated by their reinsurance partners.

However, we have seen things become clearer and more orderly in subsequent renewal periods as people come to understand what is happening in the market. We must remember that in EMEA, despite experiencing the sharpest upturn in pricing last year, this was after exiting a 20-year soft market.

These varied factors point to buyers seeking more options when determining which reinsurers they will work with, buyers will likely factor in the behaviour of their reinsurers at the last renewal as they consider individual relationships on a go-forward basis, which in turn may lead towards larger scale changes in panels.

What is MS Reinsurance’s growth strategy in EMEA?

We’re looking to grow our broad-based relationships with clients, allowing us access to diversified business built around clients’ needs. To do this, we have ‘group clients’, which are the most complex, and they tend to buy centrally as part of a consistent strategy for all facets of their business.

We also look at mature markets where there are companies large enough to build broad relationships and work with using a client segmented approach. Finally, we have emerging market-esque clients – often sub-scale firms that we primarily tackle with a market underwriting approach.

Why do clients choose MS Reinsurance?

Reinsurance is about doing the basics brilliantly, and we bring it down to three core areas.

Firstly, we work in close partnership with our clients, investing time into understanding their needs and formulating our value proposition accordingly.

Secondly, we make it easy for clients to deal with us by staying nimble thanks to our short decision-making processes.

Thirdly, we have invested a lot into our IT platform, making it state-of-the-art, and enabling competitive pricing from a low-cost base.

In isolation, each of these virtues would not make a winning concept, but having all three at MS Reinsurance makes us stand out.

What opportunities as a business do you see heading into 2024?

Strong relationships are at the very core of our business. In this way, the opportunities we see going into 2024 remain people focused. Our ability to have early conversations with our clients and come to firm commitments, from both sides, as to how to take the relationship forward is a clear opportunity for us. We’ve had a strong year of making our strategy clearer to clients and, in turn, we have a greater understanding of what they want.