Expectations – January 2023 Treaty Renewals

Colin Griffiths, Head of Broking at Oak Tree Intermediaries

Whether you were following the Monte Carlo Reinsurance briefing (September 2022) or the Baden-Baden Conference (October 2022) or just scanning the Reinsurance Press, there are clear and consistent messages coming from the Reinsurance markets which will certainly impact the upcoming January 2023 Treaty Renewals and are likely to continue well into 2023.

Global events

The recent Global events, Ukraine/Russia war (estimated total industry losses @ between $10-15 billion) and Hurricane Ian ($50-65 billion estimated insured loss) to name but two, have once again hit Global Reinsurer’s severely and a CAT pricing response can be expected. Key take-away’s from these meetings all point to issues of capacity and price as well as linked inflation globally, the likes of which we may not have seen in the South African market for decades. There seems to be unanimity that the reinsurance market hardening which began in 2019 will continue at the January 2023 treaty renewals and for the remainder of 2023 at least. 

Whilst property Catastrophe pricing may harden by as much as double digit figures, capacity is also likely to be selectively controlled. This stems from some Reinsurers’ diminished CAT risk appetite following a pattern of catastrophe losses, which appear to be tracking one another in both frequency and severity – blamed largely on Climate Change!

The same is not necessarily that dire for the casualty classes, however (Motor, Liability and Financial Lines in particular) which have seen some steady rate increases over recent times, despite current losses falling below expectations. But let’s not bank on that for too long as these classes are usually longer tail type exposures, characteristically with losses usually being paid a number of years into the future. Here, adequate reserving and ongoing review for inflation is the main point.

Inflation

Inflation has become a factor which is relatively new to some first-world markets, brought on some say by the Russia/Ukraine war. As a result, most European Reinsurers are seeing their margins coming under additional pressure, especially in Property lines as costs for repairs and reconstruction at the policyholder level spiral upwards. In Africa, and indeed in South Africa, inflation is not new to us and has been a feature we have all become accustomed to for decades already. Nevertheless, inflation in South Africa is steadily rising and its effect will sooner or later impact reserves and loss payments in particular, and other expenses in general (if not already). Insurers would benefit from continuing to pro-actively increase underlying rates and risk sums insureds in some measure to counter those inflationary effects.  

Half-Year 2022 Results

Robust Premium growth stemming largely from increasing underlying rates has been welcomed and doubtlessly needs to continue. In fact, most Global Reinsurers have posted good GWP increases for the half-year 2022, and their Net Combined ratios have on average also marginally improved, however, their pre-tax profits are down as are average Return on Equity ratios. The main driver of these meager earnings are poor investment returns. The fact is, that a third of (re)insurers reported overall losses and this does not bode well for their response to treaty renewals.

Mitigating a pricing shock

As Professional Reinsurance Brokers operating and doing business in South Africa and many other African markets for more than 12 years, Oak Tree Intermediaries (Pty) Limited is well equipped for upcoming renewals. For us, quality renewal submissions with detailed exposure data, together with a succinct future-focused renewal narrative is paramount to minimizing or eliminating areas of uncertainty in renewal terms and conditions.