Jan 1 renewals present challenges to reinsurance startups

The renewals have resulted in a more balanced market, presenting challenges for new entities aiming to enter under favorable conditions. The equilibrium achieved between the supply of reinsurance cover and buyer demand contrasts with the previous year’s imbalance caused by reinsurers reducing exposure to riskier areas.

According to Russell Merrett, chief underwriting officer at Lloyd’s insurer Inigo, the current market dynamics make it difficult for newcomers to introduce new capacity without significant price concessions. He noted that new entrants need to offer more than just additional capacity to build a viable book of business.

Despite large price increases and coverage reductions secured by reinsurers in 2023, leading to improved profitability, the rate of price rise in the recent renewal period was lower, especially in property-catastrophe reinsurance.

This sector saw an average 3% increase, compared to a 37% hike in the previous year, as per a Howden report. Reinsurers, having avoided substantial catastrophe losses last year, showed confidence in expanding capacity to buyers at the start of 2024.

Mike Van Slooten, head of business intelligence at Aon’s reinsurance solutions division, observed that reinsurers were keen to grow their catastrophe books at prevailing terms during the renewals. The strength in capacity supply was particularly notable in the upper layers of property-catastrophe reinsurance programs, which demand larger losses for payouts.

Global reinsurer capital increased significantly in 2023, reaching $635 billion in the first nine months, up from $590 billion for the full year 2022. This robust capital position, however, does not necessarily indicate a need for new market entrants, as per David Govrin, chief underwriting officer of SiriusPoint.

“I don’t personally see an influx of a lot of capital into new operating companies,” Govrin said.

S&P noted that the industry is still waiting on reinsurers’ full-year 2023 earnings for further insights into the market’s progress. The geopolitical landscape, including regional conflicts and numerous global elections, adds to the uncertainty and potential for rapid market changes, highlighting the need for caution and adaptability among startups in the reinsurance sector.

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