As focus shifts towards 1.1, our second virtual panel debate explored how the renewal season will likely play out, as well as examining the dynamics which have prompted significant market hardening through 2020.


This year began with a renewal season that saw rate hardening at reinsurance layers fail to match the upward pressure on retro and primary covers.

Few could have predicted the year that has followed, with Covid-19 prompting an unprecedented global economic shock and changing the way society and business interacts.

Panelists at the second of our virtual debates recognized 2020 had been a year of significant change for the sector, and one which will lead to different dynamics at 1.1 2021 to those of a year ago.

Jean-Paul Conoscente, CEO at SCOR Global P&C, said the reinsurance sector had handled the Covid-19 crisis well, with around $20bn of losses disclosed in the first-half of the year and no companies in any financial difficulty following the event.

“When we traditionally thought about pandemic as a reinsurer we always thought more of it more as a life and health loss, but what starts out as a life and health crisis becomes a P&C loss through government actions to contain the virus,” he said.

“We entered 2020 with a market that was hardening more on the insurance side than for reinsurance. Covid-19 has really accelerated the hardening on the reinsurance side.”

Conoscente said he anticipated we would see a long, sustained hardening market. “When we compare this crisis to previous major P&C events, it most closely resembles the casualty market crisis of the 1990s than a major cat event.

“For this reason, it will be a slow sustained hardening, rather than a doubling or tripling of price because of a withdrawal of capacity.

“This slow sustained hardening will get technical results where they need to be, and we think the supply of reinsurance will be stable compared to where we are today.”

Conoscente said he did not anticipate large volumes of third-party capital coming into the market.

“Most of the capital raising that has been done has been for companies using third party capital for their capacity. The capital they have raised is to replace the ILS capacity. We haven’t yet seen any major new entrants into the market,” he said.

“Instead, it’s been more about stability of supply.”

And he said the collapse in interest rates globally will have a dramatic impact on the technical pricing needed to generate sufficient returns on capital.

“With the current projected interest rates for 2020, to get to a 10 percent ROE the market’s combined ratio will need to be around 90, and we are far from that.

“This will be a driver in 2020, 2021 and beyond as interest rates are likely at a low level for several years,” he said.

Vivek Bajaj, managing director for Europe & Asia-Pacific at RMS, said the industry had done a reasonably good job dealing with the Covid-19 pandemic.

“You are seeing a hardening in the market. The key challenge will be how long can that hardening sustain. It’s really a fight for capital, in terms of how we might sustain the excess capital that may begin to appear. We have to guard against that,” he said.

“For this renewal season, without the benefit of Monte Carlo and other moments to gather and work through the issues together, we have to make sure we leverage relationships and the new way of working in a meaningful fashion.”

”You are seeing a hardening in the market. The key challenge will be how long can that hardening sustain”
Vivek Bajaj, managing director for Europe & Asia-Pacific at RMS

Mixed picture in specialty 

While market hardening has broadly taken place across almost all classes, there remains concern over the need for more rate in certain specialty lines.

Axis Re’s president of global markets, Ann Haugh, told the panel the rating environment is still not supporting significant growth in marine classes.

While marine cargo exposures are seeing double-digit rate increases, Haugh said other exposures, such as global energy, marine liability and marine hull, are seeing increases that remain in the single digits.

“That is the one area we still have to be prudent – the rating environment is not supporting significant growth,” she said. “Rate increases on some lines have been very layer specific for lossimpacted business,” she said.

“Although as we move into the 1.1 renewal season, there is more of a general sense of the need for rate rather than just lossimpacted rate need.”

For aviation, Haugh said the market hardening which began at the end of last year is still continuing at pace. “We expect solid double digit increases into 2021,” she said.

”Rate increases on some lines have been very layer specific for loss-impacted business”
Ann Haugh, president of global markets at Axis Re

Haugh said she was “cautiously optimistic” that trade credit rates will start to move.

“We knew it would be a bit of a wait and see game in terms of Covid-19 impacts. We have no claims in but clearly insolvencies likely to pick up in the fourth quarter and into 2021,” Haugh said.

For US mortgage insurance, Haugh said margins were now starting to contract following an earlier improvement driven by the pandemic. “That market saw significant rate increase in the early stages of Covid-19.

Those impacts peaked in April, May and June but are now starting to subside as the crisis seems manageable from a housing market perspective.

“There has been strong government support, with forbearance programmes mitigating some of the losses,” she said. “We are starting to see the margins on some of that business contract as pressures come back in. It feels like this may have been a 2020 growth opportunity rather than a 2021 growth opportunity.”

Retro shift

Increasing caution among investors has led to significant hardening this year at retro layers, amid concern about the scale of trapped capital from loss events of recent underwriting years.

Rupert Swallow, chief executive of Capsicum Re, told the panel debate the retro renewal will see a shift in the way people buy cover. “Year-on-year, rate increases of 20 or 25 percent are feasible, and these could be even higher depending on what happens between now and 1.1.” Jason Howard, CEO of Beach & Associates, said he did not expect retro conditions to ease going into the 1.1 renewals.

“The ILS market has retreated significantly in the collateralised reinsurance space this year.

While the cat bond market has continued to trade successfully and investors have been pleased with results, collateralised reinsurance has been tricky.

“We have sold a lot more ILW covers. The ILS market is happier to invest in those as there is a much tighter box around what they are writing.” Howard said the extent to which rates rise at retro layers will determine buying habits at 1.1.

“Retro buyers are very smart buyers – they know exactly what their exposures are and will not overpay for the product.

“We are seeing a lot of retro buyers withdrawing from the market or buying less. Many are looking at other capital management tools to manage their exposures.”

Because of this, Howard said it was unlikely the retro market would see a “free for all with rates going up 50 percent – it’s much more sophisticated than that”.

”We are seeing a lot of retro buyers withdrawing from the market or buying less. Many are looking at other capital management tools to manage their exposures”
Jason Howard, CEO at Beach & Associates

Conoscente said several carriers were now adjusting their retro plans, “especially the ones who were being more optimistic about how they bought their retro.

“They are needing to find different solutions - capital raising being one of them,” he said. “Beyond a certain price level, buying retrocession stops making sense economically. The key is to find some balance whether it makes sense economically or not”.

Walking a tightrope

“Cedents will have to set out their stall, explain what they are doing about Covid-19, how they are underwriting business at the front end, how that will come through at the back end,” Howard said.

“If a cedent can’t come with a coherent view about what they are doing it will be a blanket exclusion, if they can be more coherent it will be a bit more nuanced.”

Howard said the process will challenge the relationship between cedents and reinsurers as they come to an agreement that works for both parties.

“There is a certain expectation among reinsurers for rate increases, cedents will push back where they can expect that they will pay some more money for covers they are buying.

“Reinsurers will have to walk a bit of a tightrope between trying to get rate adequacy and not disenfranchising a relationship they have had with a client for some time,” he said.

Holding the Line

Haugh said the hardening needed to be sustained.

“If we want to be in business, we need to deliver returns and we need combined ratios below 100. What could dilute it? An influx of capital or capacity, which I do not foresee in a meaningful sense. I think it will get tougher to produce solid returns, particularly if the cat environment remains active.”

From a broker perspective, Howard said it is important to set the expectation to clients of where the market is and have specific conversations around your client’s business.

“You can then differentiate where they are strong and have a good story to tell reinsurers. Markets move one way or another and clients understand that, but they don’t want irrational price increases that have not been thought through by reinsurers.”

Howard said where strong relationships are in place, these conversations will have been taking place throughout the year.

“We are in a hardening market, but it is hardening at a reasonable pace and there is enough time to have these conversations. If a couple of large losses come through in the next couple of months, conversations may get a little more heated.

Swallow said the way to sustain the hard market was for it to be shared across the chain of distribution.

“Prices will have to rise for insureds and they will have to understand the value they will get for those increased prices,” he said. “If we approach it from that perspective, the hardening market will have a much longer life.”

Conoscente said starting the process early will be key to a successful renewal.

“Its not just about price increases, its about terms and conditions and wordings. Having an early conversation will be key to a successful renewal. “In the past we have seen some clients and brokers wait until the last minute to place the programme hoping the pressure on reinsurers will lead them to accept whatever terms and conditions have been proposed.

“We saw that being less successful last year. Going into this renewal that will likely be the wrong strategy.” Bajaj said uncertainty on claims reserves would require a more granular view of risk going into the renewal season.

“Many organisations are now doing increased due diligence to look at claims reserves more closely.”

Watch “Reinsurance in a time of Covid-19” in full:


  • Vivek Bajaj, Managing Director, Europe & Asia-Pacific, RMS
  • Jean-Paul Conoscente, CEO, SCOR Global P&C
  • Ann Haugh, President, Global Markets, Axis Re
  • Jason Howard, CEO, Beach and Associates
  • Rupert Swallow, CEO, Capsicum Re (which will trade as Gallagher Re from 01 October 2020)
  • Sophie Roberts, content editor, The Insurer (Moderator)