What a difference a year makes. The "Great Market Reset" of 2023 changed the reinsurance landscape for the better. A focus on underwriting profitability and tighter terms and conditions created a much-needed change that has led to a healthier and a more sustainable trading environment.
As a consequence of the hard market, the 2023 full-year results from the reinsurance sector are expected to be record-breaking -- with many combined ratios sitting not just under 100 but down well into the 80s.
In 2024, the first three quarters are set to be just as profitable, setting the tone for the 1/1/25 renewals.
Further highlights include:
- 2023 was a record year for catastrophe bonds. This trend is set to continue into 2024.
- For the first time in years, investors will receive good news and handsome profits from their insurance-linked securities (ILS) managers.
- Existing and new investors in the reinsurance sector are poised to enjoy the rewards from the reset.
- Lloyd’s will continue to flourish after a number of initiatives to attract new investors and a strict focus on underwriting profits.
- Brokers will continue to innovate using all the tools in their armory to produce creative solutions for their clients. This will result in clients being better served by the industry.
Reflecting on the frantic and stressful 2023 renewals
The January 2023 reinsurance renewals were some of the most difficult and grueling in recent memory, resulting in dislocated reinsurance protection as the industry contended with multiple issues.
The over-supplied and ill-disciplined "tenties" left us with a marketplace that was fragile and ultimately unsustainable. As an industry, we have had to contend with multiple "grey swan" events and not enough fuel in the system to meet the new norm, which was global aggregate insured catastrophe losses of $100 billion-plus versus the previous average in the decade 2012 to 2021 of $85 billion in aggregate.
Opportunity knocks in 2024 as we return to a balanced and sustainable market
Nobody wanted a repeat of the rancorous negotiations from last year. The market worked together to ensure there were no surprises and a better alignment of expectations.
There were still some tensions and vigorous discussions around pricing and attachment points. The relationship "dance" among broker, insurer and reinsurer is based on nuanced and established relationships, and a consistent rhythm to discussions returned.
The words “stability” and “orderly” have been used to describe negotiations in the run-up to the renewals, and this was an accurate and welcome alternative to the frantic and stressful environment experienced last year.
Specific pockets of some portfolios faced rate increases and restriction of capacity where results have been less favorable due to territories and perils having been affected by losses (for example, Midwest U.S., Turkey, Australasia). However, more capacity entered the traditional P&C markets.
See also: Why Brokers Have a Leg Up in Insurtech
Driving creative solutions into a more stable and secure environment
What does 2024 have in store?
Investors are providing more capacity as confidence returns to the reinsurance market. Investors returning or entering reinsurance for the first time will find a stronger market following the 2023 industry reset, and a highly disciplined environment that will now present the opportunity for incumbents, returnees and providers of fresh capital to achieve long-term value.
Meanwhile, Lloyd’s of London has opened the door to more investors via more flexible initiatives such as: London Bridge, the Standards Board for Alternative Investments (SBAI) and Syndicate-in-a-Box.
This has resulted in new structures and products coming to markets – such as the recent $100 million property catastrophe bond from Lloyd’s syndicate Beazley transacted via the London Bridge mechanism. This proves that Lloyd’s is a great place for institutional investors to gain access to global insurance and reinsurance risk.
The Great Reset of 2023 provides the platform for innovation via new technology, enhanced portfolio management tools, lower distribution costs and increased fuel in the system via investment that will lead to a more robust and less fragile market environment. Brokers can continue to develop creative solutions where investors will have the chance to deploy capital into specific programs or market sectors where there are measured opportunities.
There has always been a power struggle for who holds the reins in reinsurance negotiations. There has to be a finely balanced right pecking order, with buyers at the top, brokers responding with service and innovation and the sellers seeking to protect and grow their capital.
The 2024 outlook is positive for the reinsurance sector, particularly for investors who been calling for a more secure and profitable environment. The industry-wide reset has created a more sustainable market with long-term relevance and new opportunities.
This has paved the way for entrepreneurial talent to continue to set up their own shops and target the specialist business lines. As a result, the delegated authority and managing general agents (MGA) space is likely to receive a boost as the offering is clearer and more compelling than in previous years. The growth of the U.S. E&S market is set to provide investors and capital providers with opportunity to grow in niche territories and products. Underwriting talent matched with technology will also continue to drive change in the market.
