Rates rose broadly on January 1, 2021 reinsurance renewals, with increases largely in the low double-digit and high single-digit percentages. The U.S. saw the largest increases, followed by Europe and Asia, and reinsurers pressed for more wording changes, which ultimately took more time. Driving the increases are rising primary pricing, low interest rates, and increased risk concerns, some around COVID-19 but also around catastrophes, including wildfire, hurricane and derecho.
On the liability side, litigation costs, including higher verdicts, are causing pressure. Industry losses also played a role, sources say. Eighteen major reinsurers reported a net combined ratio across the group of 102.9%, for the nine months ended Sept. 30, 2020, with losses relating to COVID-19 and natural catastrophe events contributing 7.9 and 4.7 percentage points, respectively.
In property reinsurance, loss-hit portfolios with catastrophe exposures in the U.S. saw the greatest increases, ranging from 10% to 25%, according to data released last week by Willis Re, the reinsurance business of Willis Towers Watson PLC. Non-catastrophe exposed portfolios with losses saw rates climb 5% to 20%. Catastrophe exposed loss-free risks saw increases of 5% to 15%, while loss free non-catastrophe risks renewed flat to up 15%, the data showed. Europe, the Middle East and Africa, and Asia-Pacific regions saw low-single-digit percentage increases, according to the Willis Re report. Reinsurers pushed for exclusions on pandemic and communicable diseases as well as silent cyber exposures. Insurers at Lloyd’s of London required property treaties to include either exclusions or specific affirmations for silent cyber, adding that Lloyd’s can set the standard with contract wording for other renewals.
The global pandemic has revealed exposures that had until recently not been fully appreciated – most notably in business interruption and property policies, which were not always construed to provide coverage for such a wide-reaching loss event. It has also highlighted inconsistencies and a lack of clarity in the wordings of primary insurance policies and reinsurance contracts. This has led to disagreements over the soundness of reinsurance cover, as well as how claims should be aggregated for the purpose of recovery under non-proportional excess-of-loss contracts.
The biggest challenge at this renewal, however, was undoubtedly exclusionary language and clarity of wordings related to COVID-19, particularly loss occurrence clauses and, where relevant, claim payments or claims validity.
Insurers have significant concerns regarding in-force books and books in run-off and are keen to understand which
of their exposures may be excluded under their reinsurance contracts.
Due to numerous world and domestic events, the rates are rising. Expect for the policies to become more exclusionary in wording.