According to some experts, the world insurance market has experienced a very difficult renewal season due to the bad situation of natural disaster losses (in which Hurricane Ian was recorded as the event causing serious loss of life - 2nd largest natural disaster loss in history after Hurricane Katrina), negative effects of the Russian-Ukrainian conflict, rising inflation, the risk of secondary perils...
The adjustment of premium for non-proportional contracts, the adjustment of capacity, commissions, and especially the limit of liability on an event limit for proportional contracts are consistently applied by reinsurers when providing offers. With the above situation, Vietnamese insurers have also encountered many difficulties in negotiating reinsurance contracts in 2023.
The most difficult renewal season ever
Given the fact that a number of reinsurance policies for the Property and Hull segments in the market are still having negative results due to bad losses along with the fierce competition for engineering and cargo insurance... finding the top reinsurer and arranging reinsurance is really difficult during this renewal season because many international reinsurers have policies to stop or limit the supply of capacity to the proportional contracts, the trend of “hardening market” has officially changed to “hard market”.
The continued tightening of reinsurance capacity forced insurers to increase retention because many contracts were quite unbalanced in terms of liability compared to premium revenue. For contracts that are profitable, increasing commissions is not nearly possible and similarly, reducing commissions is inevitable for contracts with bad results. The event limit has also been reduced to reduce pressure on reinsurers to fund disaster risks and reflect the actual accumulation of risk portfolios of companies in Vietnam.
A prominent problem in the Vietnamese market in recent years is the situation of co-insurance among many companies to take advantage of the fixed contract capacity, which makes the cumulative control of participating reinsurers into many complex contracts in the market. This is also an issue that reinsurers take into account and adjust when offering offers for proportional contracts.
Non-proportional contracts are revalued in an upward direction to reflect inflation, climate change, and ensure the requirement to improve contract returns (margin). Like insurers' claims to increase withholding on rate policies, reinsurers increase non-proportional coverage to reflect market risk and trends of losses in recent years. The contract capacity provided for disaster risk is reduced, and does not exclude the possibility that many reinsurers do not engage in disaster-related coverage.
In addition to the standard exclusions on infectious diseases and cyber security risks that have been in place since the previous renewal season, this year the new sanction provision deals with economic, transportation and trade sanctions. Trade related to the Russian-Ukrainian conflict is included in the contracts.
Gallagher Re's review of the January 2023 renewal season
According to the reinsurance broker Gallagher Re, the January 1 renewal season was complicated and in many cases disappointing as intense negotiations continued "to the last minute" and reinsurers have limited reinsurance capacity and promoted tight terms with high premiums.
Gallagher Re's January reinsurance report notes that the two most constrained areas are U.S. property disaster risk reinsurance capacity and coverage for strike, riot & civil action and war.
In most other types of insurance and other sectors, analysts say, buyers can largely find reinsurance capacity, albeit at higher costs and in many cases having to change their reinsurance structure by increasing self-indemnity retention and increasing the “floor” on the minimum premium to limit ratio, a major focus of many reinsurers.
Key trends include disagreement between reinsurers willing to offer reinsurance terms and capacity as head of reinsurance and other reinsurers waiting for official participation rate confirmation in last minute attempt to tweak terms.
Clients with extensive trading relationships also facilitate negotiations with a number of reinsurers, helping to achieve consistent premiums and/or increase reinsurance capacity.
“The renewal process has been exhausting for market participants, many of whom have not been exposed to rapid changes in market conditions during the renewal season,” said James Kent, General Manager. Global CEO of Gallagher Re said.
However, improvements in amortization methods and conditions, especially for property disaster-related insurance, have given the market some new funding.
Contracts in excess of loss (XOL) must accept a strong fee increase of 15% - 20%, most proportional contracts must reduce capacity, reduce the limit of liability on a loss event (event limit), reinsurance commission, some have to accept the commission mechanism according to the contract results (Sliding Scale Commission).
Furthermore, with the exception of property insurance, the reinsurance market of treaty liability insurance is considered to be calmer and more affordable than other types of insurance, with the completion of renewals on terms considered strict but fair by most buyers.
Source: Một số quan sát về mùa tái tục 1/1/2023 tại thị trường Việt Nam (iav.vn)