Good reinsurance rates to sustain high retro pricing in 2024: Grandi, Twelve Capital

Marcel Grandi, head of ILS sourcing at Insurance-Linked Securities (ILS) and reinsurance asset manager at Twelve Capital, expects price increases to be limited in 2024, but is optimistic about the future as reinsurers continue to cede a significant portion of their exposure to the retrocession market.

marcel-grandi-douze-capitalesIn a recent webinar hosted by Twelve Capital, Grandi presented the ILS market outlook ahead of the January 1, 2024 reinsurance renewals.

He noted that while in 2023 there was a “huge” rise in retroinsurance and reinsurance prices, the outlook for 2024 is more conservative, with the potential for price increases likely to be limited to some extent.

“Our estimate is a risk-adjusted price increase between stagnant and perhaps 10%. There are, in our view, more opportunities for substantial price increases in the middle tier segments, less opportunity for substantial price increases for the upper tier segments or the segment furthest from risk, because this is exactly the segment where there seems to be the most competition. protection providers,” Grandi said.

According to Grandi, one of the main positives for Twelve Capital is that reinsurers are ceding much of their exposure to the retro market. Indeed, the ILS and reinsurance asset manager estimates that the cession rate is approximately 16.6% of the premiums transferred retroactively.

“Inflation obviously has an impact on exposure and insured values, meaning there is demand to buy a little more limit. On the other hand, retentions are increasing, which means that layers are becoming further away from risks,” continued Grandi.

“And what is also interesting is that retroinsurance is generally perceived as a little more expensive than reinsurance, and its attractiveness is considered higher,” he added.

As Grandi noted, throughout 2023, reinsurance pricing has essentially caught up, particularly during mid-year renewals in the United States.

“So obviously in the retrocession market you can obviously only pay what you receive from the reinsurance, and so good reinsurance pricing should also help, let’s say, maintain the high level of retrocession pricing,” Grandi said.

Although price is only one side of the coin, tough markets are also influenced by terms and conditions, and this is another part of the equation that has seen huge improvements over the last couple of years. years.

“I guess we now have language in all contracts called natural perils, which means we don’t have an explosion, or a fire setting in. That was particularly the problem you had in the COVID era because you had vague language, and then the COVID losses, the business interruption losses were seeping in. So everything is a lot cleaner today.

“The list of exclusions is relatively complete. And especially for the collateral market, the most important thing is that you have very good and clean collateral release and switching language,” Grandi said.

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