Prices at the January 1 treaty renewal season did not increase sharply as initially predicted as the global reinsurance capital pool closed out last year 3% higher than 2019, according to reports.

Reinsurance broker Willis Re says the market conditions resembled “more of a firming landscape” than a “truly hard market”, giving insurers shopping for reinsurance protection scope to secure somewhat better prices.

But the price increases pushed through by reinsurers largely arrested the persistent downward trends experienced in recent years.

Rates have been expected to harden considerably heading into this renewal season because of elevated natural catastrophe losses, prior year development on liability lines and emerging COVID-19 losses.

“Reinsurers may express disappointment that they have not achieved all the improvements they were seeking across their entire portfolios, but they will be pleased that the persistent downward drift that has characterised recent years has been arrested and reversed,” Willis Re Global CEO James Kent said.

“For buyers, terms and conditions have overall been reasonable and logical with the greatest areas of stress being concentrated on renewals which clearly needed remediation.

“The [January 1] renewal season has proved that the global reinsurance market has an extraordinary operating resilience, with working from home being the norm and traditional face-to-face meetings, an integral part of our business, no longer being possible in the vast majority of countries.”

The Willis Re report says the global reinsurance capital base recovered rapidly last year to finish 3% bigger than 2019, supported by improving investment markets, retained earnings and new capital inflows.

In the Australian market, property rates on a risk loss free percentage change basis moved +2.5% to +10%. Willis Re says reinsurers were hesitant to quote as they were unsure of the speed at which the market was firming. They viewed placements holistically and were cautious about offering terms or indicative capacity.

In casualty lines, Australia rate movements for excess of loss business with no loss emergence of as high as +5% were recorded. Prices for placements with loss emergence moved +5% to +15%.

A separate report from Guy Carpenter says global property pricing generally settled at the lower end of expected increases. Rate movements on non-loss impacted property retrocession renewal programs were not as robust as many had predicted. Additional capacity in the retrocession market, lower limits bought by some global companies and increased activity in the catastrophe bond market combined to moderate some of the upward pressure.

Communicable disease exclusion wording emerged as a key discussion area in property renewals, the reinsurance broker says. Capital providers and investors stipulated exclusions in many renewals having seen how the coronavirus outbreak morphed into a global loss event.

Pricing for casualty renewals was heavily dependent on individual factors such as loss experience, covered lines and industry classes written. Every placement experienced some degree of continued reinsurance underwriting rigor around stress factors broadly encompassed by social inflation, the low interest rate environment and communicable disease.

Guy Carpenter estimates traditional reinsurance capital at the end of last year was valued at about $US397 billion ($510.3 billion), a marginal increase from 2019. Catastrophe bond offerings continued to attract significant investor interest, taking last year’s issuance to a new record of $US10.8 billion ($13.9 billion).

According to an Aon report, the traditional reinsurance capital pool reached a record $US533 billion ($685 billion) at the end of last September while alternative capital was estimated at $US92 billion ($118.3 billion).

The January renewal season saw mixed rate change outcomes across programs, with discussion centred on contract language, most notably for communicable disease language as the market worked to determine the exposure to individual placements.

“Despite record-setting hurricane landfall in the US and uncertainty about the impact of COVID-19 in some lines, the reinsurance market operated in an orderly and efficient manner for January renewals,” Aon said.

“New capital raises and primary market pricing trends mitigated further market dislocation as renewals evolved through January 1 despite recent years earnings results, US catastrophe loss activity and interest rate challenges for reinsurers.

“Additional new capacity expected to come on-stream in the early part of the year will help to mitigate the expected pressure on reinsurance terms.”