The reinsurance community has rung in the new year with a responsive market for January 1 renewals, after an estimated 2023 increase in traditional capital of 12 per cent, an analysis by Guy Carpenter in partnership with AM Best has calculated.

GC has observed ample capacity and a commercial approach to trading partnerships over the renewals period.

Rebounding capital in the sector, together with healthy reinsurer returns nearing 20 per cent for 2023, have driven an increase in reinsurance capacity through year end, the company said.

The two companies estimate total dedicated reinsurance capital increased by 10 per cent compared with year-end 2022. Capital growth, differing from past years following a major market correction, was driven by existing reinsurers with no start-up class of 2023, their report said.

Dean Klisura, the president and chief executive of Guy Carpenter said: “The January 1 market reflected more balanced trading conditions providing cedents improved opportunities to achieve their objectives, while maintaining key reinsurer relationships.

“Technical discussions were essential to reinsurers’ increasing appetite and capacity allocations.”

The reinsurance specialist experienced a smoother January 1 renewal period this time compared with a year ago.

But there were challenges in some areas, with outcomes dependent on loss experience and technical, data-driven insights, reflective of reinsurers’ focus on a more in-depth understanding of portfolio dynamics.

While property renewals were the focus a year ago, casualty faced more scrutiny this year.

Guy Carpenter said there were key developments during the January 1 renewals: “A more consistent trading rhythm returned to the property market, with capacity deployment outside of frequency-exposed layers and more heavily loss-impacted segments showing meaningful bounce-back, including on new business where reinsurer activity increased measurably.

Markets remain sensitive to pricing, attachment point and overall structure adequacy but with terms and conditions that were borne out of the demonstrable corrections made throughout 2023.

“Proactive discussions early in the renewal process on subjectivities such as strike, riot and civil commotion, terror, and cyber led to material concurrency improvements among placements.

“Global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single-digits up for non-loss impacted and 10 per cent to 30 per cent up for loss-impacted programmes, with a wide range of outcomes around these averages.

“Generally, pricing pressure was greatest at the lower ends of programmes, with any risk-adjusted decreases near the upper portion of placements, reflecting the adequacy of minimum rates-on-line and sufficient capacity.

“Casualty saw pressure on pro-rata ceding commissions as well as excess of loss pricing. While negotiations were nuanced and bespoke, capacity was ample once market clearing terms were met.

“The key to driving renewal capacity was differentiating client portfolios and ensuring actuarial assumptions reflected go-forward portfolio strategies. Additionally, it was important to demonstrate continued discipline in limit deployment, risk selection and other underwriting measures, as these efforts needed to be accounted for in renewal pricing.”

The report added that 2023 was shaping up to be profitable for reinsurers, reflecting the degree of market correction and patterns of loss activity. Return on capital is exceeding reinsurers’ cost of capital, as projected average returns are nearing 20 per cent.

It also said: “Property retrocessional capacity was available and not constraining reinsurers’ risk appetite, in sharp contrast to this time last year. Price improvement generally occurred in middle to upper layers, retention levels largely held steady despite growth in underlying portfolios, and terms were more consistent within contracts.”