A snapshot of 2023: Guy Carpenter believes that macroeconomic headwinds combined with global loss activity continued to drive challenging market conditions, necessitating negotiations deep into the renewal period to deliver the best possible client outcomes.
The reinsurance industry faced many headwinds in the last quarter of 2022, as a high number of catastrophe events and large losses were compounded by a deteriorating economic environment. The estimated 2022 large loss total rose to USD 138 billion, largely driven by Hurricane Ian. The combination of these factors led to a challenged market, with dislocation between cedent and reinsurer expectations around pricing, attachment and coverage.
These conditions continued in the first quarter of 2023, with large losses totalling an estimated USD 19 billion, including the damaging earthquakes in Turkey and Syria (approximately USD 3.4 billion), while other notable large losses included severe convective storms in the US and floods in the North Island of New Zealand.
This led the broader market trends seen at January 1 to continue into mid-year renewals, but with improved timing and concurrence around terms and conditions. While property pricing saw continued risk-adjusted rate increases in many segments, the average change moderated from the levels clients experienced on January 1.
Additional capacity and increased appetite entered the property market at mid-year. However, the increased capacity remained highly disciplined around attachment points, pricing and coverage. The casualty market continued to trend in a cautious direction. Reinsurers closely monitored prior-year loss development as well as the moderating underlying rate environment.
Across the board, pricing was firm, with a wide range of risk-adjusted rate changes seen throughout individual layers. Global property catastrophe reinsurance risk-adjusted rate increases ranged from +10% to +50%, with loss-impacted clients often seeing higher pricing.
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The African Market
For African reinsurance and retrocessional placements, overall capacity was not readily available at expiring terms. There were a number of significant changes, with slip conditions limiting scope and perils covered. Retentions increased along with price, and—where possible—reinsurers imposed conditions where risk and catastrophe coverage were to be split. There was a reduction in appetite for proportional programs, and we commonly faced a push for non-standard terms to complete placements late into the renewal season.
In South Africa, cedent retentions were under pressure due to loss activity, including the 2022 Kwa-Zulu Natal floods, with reinsurers starting around double the current levels. Pressure on commissions remained, with capacity being deployed selectively but overall the July 1 renewal process ran more smoothly than January 1. Coverage continues to be reviewed, with focus on underlying grid failure exclusions being key.
Looking Ahead to 2024
Guy Carpenter expects that current market trends will persist into 2024, and to achieve continued best terms for clients, it is becoming increasingly critical to provide accurate, comprehensive data. We expect reinsurers to continue to offer capacity in Africa as they seek to diversify portfolios and mitigate concentrated exposures in North America, Europe and Japan.
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