An historically challenging reinsurance renewal, and key takeaways for the years to come

This year 1/1 reinsurance renewal negotiations were expected to be difficult, but probably not to the extent that happened.

This year 1/1 reinsurance renewal negotiations were expected to be difficult, but probably not to the extent that happened.

In this article we are taking a step back to look at the reasons for this difficult renewal, consequences and difficulties arising in the day-to-day work of market participants, and some solutions to improve the way insurers, brokers and reinsurers work together.

1/ Increase in weather events and inflation: the two main reasons for a difficult renewal

The 1.1 renewal was complicated for all parties (cedents, brokers and reinsurers). Numerous articles have reported on this unprecedented renewal - or at least for several decades. According to S&P, the price dynamics and hard market are likely to continue in future renewals.

The reasons put forward are mostly a result of climate change and the increase in weather events. For example, Swiss Re explains  how the bad year in insured losses on hail in France in 2022 is causing the market to revise its estimation of this risk (Severe 2022 hail damage in France sets new benchmarks, underscores shift of risk and calls for pricing adjustments | Swiss Re). The return periods that help structuring and pricing Cat reinsurance treaties are largely revised downwards resulting in higher retention and/or prices. On the other side of the Atlantic, Hurricane Ian is having the same impact on the market. 

Other factors to consider are macro-economic and geopolitical ones such as soaring inflation and the war in the Ukraine. Taking the example of Property, inflation is resulting in building reconstruction costs at levels rarely seen. The cost of claims on this branch is mainly driven by these reconstruction costs and the price of reinsurance is strongly impacted. This is all the more true when the volatility around inflation is high.

2/ In addition to the rise of reinsurance prices, important consequences in the operations of cedents and brokers

The consequence of all these simultaneous factors has been a hardening of the market. This is notably materialized by the decrease of capital injected into the global reinsurance market: Aon estimated at 30/09 a 17% decrease in capital.

Thus, reinsurers have been in a position of strength and more able to impose their conditions on their cedents, on two main dimensions:

  • Prices, with an increase in prices, very late return of reinsurers to cedents and brokers in terms of tariff conditions, with therefore a much reduced margin of maneuver and negotiation to attract other reinsurers to their programmes, and very short validity periods for the reinsurers offers
  • Terms and conditions of the wordings, with reinsurers, given the market environment and the rise of specific new risks (cyber, Covid etc.), that are better controlling their contracts and pushing for specific clauses excluding or specifying in their own way the wording of the reinsurance contract

Reinsurers have therefore, in a way, taken over the negotiations by pushing the need for better profitability than in previous years. The cedents and reinsurance brokers were thus forced to adapt themselves, in particular with:

  • More differentiated conditions in terms of price and wording, bringing much more complexity than homogenous terms, both in the placement and management of the reinsurance programme 
  • Increase in repetitive and manual tasks with little added value and operational risk, such as follow-up on reinsurers quotes, more rounds of negotiations etc.
  • Less time to perform the negotiations, and the need to do the administrative tasks (creation of final documents, signature etc.) now quicker than ever

3/ A tool to streamline operations, the right solution to be the most efficient during and after the renewal

In response to the increase in these issues, Bifröst has created a solution that allows to:

  • Have all reinsurance programmes on a single platform accessible by all team members;
  • Manage interactions with reinsurers, cedents and teams members via an integrated messaging system;
  • Generate, send and edit draft contracts in a minimum of time;
  • Request and collect quotes from reinsurers;
  • Generate and assign differentiated conditions to the right reinsurer;
  • Track and trace changes made to a clause or a quote: a complete audit trail;
  • Automatically generate in one step the different signature packs with the reinsurance contracts assigned to the right reinsurers.

Time spent on these tasks can be reduced by 55% using our platform, with 5 main benefits:

  • Better collaboration between teams;
  • Less time spent on manual and repetitive work;
  • Reduce operational risks and human errors;
  • Versioning and tracking changes;
  • Manage differentiated conditions.

With such a solution you will have all the tools you need to work efficiently with your teams and reinsurers partners, to be able to bring the most value to your clients!

Get in touch if you want to know more, or to try our solution.

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