Shock reinsurance renewals are the worst kept secrets ever
Every time reinsurance buyers face a hard market there are exclamations of shock from some cedants and brokers, while others seem better prepared for negotiations.
A recent episode of Voice of Insurance podcast featured Alex Powell, CEO of Aegis London. Mark Geoghegan’s asked his views, as a cedant, on the recent reinsurance renewals – a source of angst and chagrin for many buyers in the London market.
“I certainly think we were well prepared. Our plans didn’t land as exactly as we thought they might – things were slightly worse – but we definitely saw the tide changing,” Powell told the podcast.
This is a crucial issue for many buyers. There is great value of laying realistic plans ahead of renewals. This can mean briefing the board to be realistic in their expectations, taking tough decisions about what protection is most necessary, where to set the deductibles and trigger points, and setting reinsurance budgets accordingly.
It can also mean marshalling quality data, about the strength of an insurance portfolio, and the level of analysis going into risks being underwritten. It means readying that data, ahead of the curve, to support the broker in their quest to find a better-than-average deal in a tough market.
Good planning can’t guarantee everything will be smooth. But it always pays to manage your own house well, regardless what the broader market is doing. As the saying goes, no plan survives first contact with the enemy. In the case of this January’s reinsurance renewals, the opposition showed up late.
“Some things came late, some even past the 1 January renewal date. I wouldn’t say that we were massively in front of it, but I certainly wouldn’t say that we weren’t on top of it,” Powell noted.
This lateness arose from uncertainty among reinsurers trying to negotiate their own retrocessional protection, and, similarly in the capital markets, among capacity providers for catastrophe bonds. For less prepared cedants this led to disappointment.
Aegis had to adjust its 2023 plans, leading to changes to its own underwriting appetites, he explained. Property rates, in particular, “leapt ahead” of the firm’s plans, he underlined.
“The thing about retention is that you’re learning about it and adjusting for it, but you’ve got to live with it. And until we have the experience, we won’t know how good or bad that’s been,” Powell said.
“We were well steered, both by our in house buyer, and by our reinsurance brokers, so we knew roughly what to expect, but until we actually experience a loss, or net losses, it’s all just numbers on the spreadsheet. But I think we’ve preserved ourselves for a long time in a world where we’ve had relatively modest retentions for our size. So perhaps we’ve not felt the adjustment as keenly as others,” he added.