The January 1 renewals have proven to be one of the most challenging reinsurance markets the sector has experienced as reinsurers and cedents worked to establish a new market equilibrium, a leading global risk and reinsurance specialist has said.

Guy Carpenter, a business of Marsh McLennan, said: “In a renewal season that was extremely late, ultimately, placements were largely completed at client issued structures and pricing, without many of the requested modifications in coverage.

“Reinsurers presented fractured views at the outset, with more extreme coverage modifications threatening to erode the core value of the reinsurance product.

“However, progress has been made finding paths to completion and many non-concurrent coverage issues have been resolved. There is still work to complete; this is not yet a settled market.”

Dean Klisura, president and CEO, Guy Carpenter, said: “Looking past the renewal of January 2023, it’s important to remember that we have been at crossroads before.

“In prior reinsurance cycles, significant catastrophe loss events such as Hurricane Andrew, the attacks of September 11, 2001, and Hurricanes Katrina, Rita and Wilma were the catalysts for market corrections that preceded new capital entering the sector.

“It is imperative that the industry stay focused on providing workable client solutions, thorough coverage and balanced pricing for the long-term sustainability of cedents and markets. Our top priority is ensuring that clients are getting the coverage and clarity they require in order to conduct their business.”

Guy Carpenter said key developments during the January 1 renewals include:

•Property was the most challenged sector. Market adjustments focused on three distinct areas: pricing, attachment and coverage. Consistency in coverage and achieving concurrent terms are priorities for cedents. Ultimately, coverage changes that presented the most extreme erosion of value were not widely taken up and marketwide adjustments were largely limited to terror and strike, riot and civil commotion clauses.

•The imbalance of supply and demand in property catastrophe drove a stressed market and, in some cases, led to pricing and structural changes unsupported by technical considerations. While conditions warrant a market correction, not all outcomes were logical or sustainable. Average price adjustments and increased attachment point movements were substantial across the portfolio, worldwide.

•Some reinsurers reduced or withdrew their property capacity in 2022, but others are now viewing this market inflection point as an opportunity to increase their participation and future outcomes should stabilise as capacity deficiencies moderate.

•The expected inflation-driven increase in demand did not materialise as buyers reassessed the cost/benefit of additional limit purchases, which resulted in only negligible increases.

•Underwriting requirements in other classes of business (outside property) were widely varied. Specific to casualty lines, treaty results were highly dependent on prior-year results, underlying rate changes, and overall portfolio performance, with pressure on pricing seen across most lines. Overall, once market-clearing pricing was determined, capacity was stable across most casualty lines with very little change in terms/conditions.

•There was limited new capital inflow through the fall as investors held back amid continued catastrophe loss, increasing risk-free rates, their own moderating AUM and a desire to assess the market transition at January 1. However, capital did start to move more freely into the sector in December as the degree of market correction became clearer.

David Priebe, chairman of Guy Carpenter, said: “As reinsurers adjusted their approach, Guy Carpenter worked closely with our clients to prepare for more detailed, technical discussions and to strategise on multiple solutions in a shifting environment, finding pathways to achieve viable renewal outcomes.

“We all recognise a healthy, dynamic and responsive reinsurance market is crucial to the global economy and our collective success.”