Traditional dedicated reinsurance capital at the end of 2020 was estimated at $397 billion, a marginal increase year-on-year. Favourable valuations of asset levels and capital initiatives saw capital levels recover from a midyear decline.

The estimation was made by Guy Carpenter & Company and rating agency AM Best.

Reinsurers struggled to achieve positive returns on equity due to the impact of Covid-19 and catastrophe losses, however catastrophe bond offerings continued to attract “significant capital.”

David Priebe, chairman of Guy Carpenter, said: “New issuances in the catastrophe bond market have been very buoyant in the fourth quarter bringing full-year issuance to $10.8 billion, a new record for annual property and casualty catastrophe bond activity.”

Meanwhile, price increases at the January 1 reinsurance renewals were moderated compared to initial expectations by abundant capital levels and an increased willingness on the part of reinsurers to deploy capacity in several sectors, according to Guy Carpenter.

The global risk and reinsurance specialist, a business of Marsh & McLennan Companies, said there had been an earlier start to the renewals, a slower and more complicated quoting process, rigorous contract reviews, and a later than average signing process.

In addition, it noted significant pricing pressure for loss-impacted programmes, pricing for loss-free programmes generally in line with expectations, and that renewal experience varied depending upon underlying portfolio exposures and performance.

Peter Hearn, chief executive officer of Guy Carpenter, said: “2020 has been a year like no other. It has seen our industry take the strain of unparalleled uncertainty in the loss environment and the broader economy, all while working under conditions throughout the year we have never experienced. Yet despite these pressures, the reinsurance sector has performed admirably throughout a lengthy renewal process.”

Dean Klisura, president of Guy Carpenter, said: “We are focused first and foremost on client needs and working with our reinsurer partners to achieve the best possible outcomes for clients. We truly believe that the unique challenges our market has endured have served to strengthen the bonds we have throughout this industry as we all respond to this extraordinary period.”

The quoting and firm order process was more complex than in recent years, particularly for stressed geographies and lines of business. In addition to rate and structure considerations, contract wording discussions were a significant component of negotiations. Communicable disease and cyber exclusions were two of the more prevalent topics.

In property lines, pricing generally settled at the lower end of expected increases. Where placements were loss impacted, particularly in cases where retentions were perceived to be too low, reinsurers held firmer on pricing or structure adjustments.

Guy Carpenter said known global large losses in 2020 were higher than average, excluding Covid-19, driven by frequency of small and mid-sized events. Based on current market views, it said loss implications from Covid-19 were not as disruptive as feared earlier in 2020.

Communicable disease exclusion wording was “a key discussion area on every property renewal worldwide”. Due to the potential global nature of this type of loss and the possible broader financial market correlation, capital providers and investors stipulated exclusions in most cases, according to Guy Carpenter.

It said: “Since midyear 2020, as this issue was crystallising, there has been a substantial amount of focus across the industry on the best approach to satisfy the need for an exclusion, while not eroding critical protection for covered perils. Guy Carpenter has worked diligently with capital providers during the past few months to introduce wordings that address client concerns and bring the industry closer to a consistent approach.”

Casualty renewals were said to vary widely, depending on individual circumstances including loss experience, covered lines and industry classes written.