Cat losses drive European renewals

Insurers in the EMEA region faced their toughest January renewal in twenty years, with wind and flood perils proving most challenging to place.

For the first time in two decades, insurers in the EMEA region faced significant increases in rates and retentions at the January 1 renewal. Following a sustained period of underwhelming results, catastrophe losses and macro-economic volatility, reinsurers globally sought to reset the market. 

Demand for property reinsurance in EMEA grew at January 1, supported by high inflation in the UK and Europe. As a result, European insurers sought additional reinsurance limit of approximately €5 billion at a time of constrained supply for property catastrophe capacity in both traditional reinsurance and alternative capital markets. 

The January renewal also followed sizable catastrophe losses in Europe during 2022, including winter storms Dudley and Eunice, and severe hailstorms in France costing €4.8 billion, according to the French Federation of Insurance. Catastrophes in 2022 compounded losses from low-pressure weather system Bernd in the summer of 2021, which caused devastating floods in Germany, Belgium and the Netherlands. With insured losses of $13 billion, Bernd is the costliest event on record in Europe on an inflation-adjusted basis.

Wind and flood perils proved the most challenging to place, while increases were marked in France, Germany, Netherlands and Benelux, which suffered heavy catastrophe losses in 2021 and 2022. Risk adjusted increases for property catastrophe reinsurance were standard although some insurers with loss affected portfolios saw increases almost double the average. In other markets, such as Switzerland, Iberia and Greece, price increases were more moderate.

The tight market for property catastrophe reinsurance saw insurers in Europe take higher levels of retentions in their reinsurance programs at January 1, having bought earnings driven cover for relatively low return periods at previous renewals. Retention levels across the region increased as reinsurers moved away from lower layers, with attachment points generally moving up from around the 1-in-2 or 1-in-3-year event level to 1-in-5 for Europe. 

In the UK, capacity was more readily available than some other territories, although at a price, with the average risk-adjusted increases in the double digits. Pricing and terms for occurrence excess of loss covers in the UK returned to 2014 levels, while risk excess of loss cover was particularly challenging, with fewer reinsurers offering capacity. Retentions on first layers for UK insurers typically increased to around the 1-in-8 or 1-in-9 year event return period from 5-6 years in 2022.

Terms and conditions also came under pressure as reinsurers took steps to clarify coverage. Generally, reinsurers looked to limit cover for secondary perils, such as winter and hail storms, which are less well-modeled compared with peak perils. In the UK, insurers continued to purchase all perils coverage, however there were changes to hours clauses, restricting coverage to a certain timeframe (wind moved from 120 hours to 72 hours and named storm and flood/freeze moved from 504 hours to 168 hours). Strikes, riots and civil commotion wording reduced to city from country wide, and there was also a physical damage trigger in the hours clause. 

While property catastrophe capacity was constrained, a combination of increased retentions, hours clause revisions and price rises helped to stabilize capacity offered to EMEA insurers at January 1. Intensive preparations in the runup to January 1 also helped mitigate the turbulent renewal, ensuring that clients were able to purchase the core cover they need.

When the dust settles on the renewal, we are optimistic that capital will begin to enter the reinsurance space over the course of 2023 and stabilize the market, particularly as the benefit of higher pricing and interest rates becomes visible in earnings. 

We also see opportunities for clients to optimize capital and grow their businesses in a renewed partnership with reinsurers. Capital and reinsurance optimization is more important than ever, and clients have a number of levers at their disposal, including integrated placements across property and casualty, legacy and structured reinsurance solutions, strategic consulting and data analytics.

Rest assured, Aon is working hard to create additional capacity and ensure that reinsurers are able to support our clients to the fullest.

Read Aon’s Reinsurance Market Dynamics for a comprehensive discussion of the January 1 renewals, including our outlook for reinsurance capital, lessons learned and top tips for navigating today’s challenging market conditions.