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January 1st of each year marks the date for catastrophe reinsurance renewals. The outcome of these renewal negotiations can set the tone for the year ahead in the insurance market and may have flow on effects for policyholders.
At its heart, reinsurance is a way for insurance companies to spread their risk and keep the balance sheet stable. Think of it like extra layers of protection - you insure your car with one provider, but the insurer has an additional layer of security from another insurer's policy. Reinsurance prevents insurers from taking on too much liability at once. Simply put, it’s insurance for an insurance company.
This year, reinsurance renewal negotiations were considered extremely challenging, with a wide range of global events weighing heavily on the market. Some of the events impacting these negotiations include the Australian floods, the War in Ukraine, Hurricanes in the U.S., and rising inflation and interest rates.
There are three main factors at play when an insurance company renews its reinsurance, as explained in the table below.
Insurance companies will look to pass on the increases in reinsurance pricing to policyholders meaning we expect property insurance pricing to rise for some homes, business buildings, and other property insurance. In the past, we have seen examples of insurers refusing to offer cover if it did not meet their minimum pricing requirements. Additionally, insurers may elect to decline offering certain covers such as flood, bushfire, or cyclone.
With higher attachment points for property catastrophe reinsurance, insurance companies will closely monitor and avoid or limit writing business in known storm or flood-prone areas. We believe securing coverage will be one of the biggest factors impacting policyholder renewals this year.
A well-presented risk that highlights your risk management approach, as well as using updated insurance valuations to help ensure your business is adequately protected in the event of a loss will be key.
To discuss your risk exposures or risk management procedures, please feel free to reach out at any time.
National Facilities Placement Manager
