The reinsurance market operated in an orderly and efficient manner for January renewals despite record-setting hurricane landfall in the US and uncertainty about the impact of COVID-19 in some lines, says Aon in its January 2021 edition of the “Reinsurance Market Outlook” report.
Virtual market trading did not impact the industry’s ability to efficiently trade through the major reinsurance renewal date of the year.
New capital raises and primary market pricing trends mitigated further market dislocation as renewals evolved through 1 January despite the earnings results of recent years, US catastrophe loss activity and interest rate challenges for reinsurers. Through year-end, the market saw capital raise over $23bn, split circa $15bn in equity and $8bn in debt.
While the industry saw new reinsurers develop with experienced leadership teams, more than 75% of the equity issuance went to existing market players. Traditional capital overall increased $3bn ending Q3 at a new peak of $533bn compared to 2019’s year-end of $530bn. Despite regaining some ground since Q2, alternative capital remains below 2019 yearend levels through Q3 ending at $92bn. Collateralised reinsurance continued to decline over the period while catastrophe bond issuance saw its peak in 2020, and sidecar and ILWs remained relatively stable. In total, global reinsurer capital ended Q3 2020 flat at $625bn.
While capacity is expected to meet the demand for future renewals and new capacity will likely enter the market in 2021, risk-taking strategies will evolve as the impact of COVID-19 becomes more transparent and the potential return of social inflation looms. Demand renewed slightly up for the industry at 1 January with mixed rate change outcomes across programmes. Much discussion centered on contract language, most notably for communicable disease language as the market worked to determine the exposure to individual placements.
Global insured catastrophe losses ended 2020 at near average levels of $86bn. The US experienced significantly higher insured losses of $66bn for 2020 compared to a prior 10-year average of $46bn.