ILS stable at April renewals, retro becoming quite complex: Vickers, Gallagher Re

At the April 1st reinsurance renewals, the insurance-linked securities (ILS) market played a role as usual and was relatively stable, but the retrocession marketplace is one area that continues to become increasingly complex, according to James Vickers.

We spoke with James Vickers, Chairman International, Reinsurance, at Gallagher Re about market dynamics at the April 1st reinsurance renewal and overall he characterised the renewal as one with similar trends to January, in most cases.

Some complexity is emerging related to the Ukraine – Russia situation though and there are areas of coverage that remain difficult to place, including aggregate reinsurance capacity, Vickers explained.

But generally, the market was disciplined and the renewal outcome not unexpected, it seems.

Discussing the capital markets, Vickers explained that, “The ILS market always plays a role in Japan, it has done for many years, and it continued to do so in a relatively stable way.”

“A number of the Japanese companies buy traditional cat bonds and there’s lots of capacity for them, it’s just a question of price,” he continued.

Adding that, “They’ve (cat bonds) performed well, the market, the investors like those, so there were a number of deals that have been done in the last few months which have got home quite satisfactorily. So, no particular disruption there.”

It wasn’t all smooth going though and there remain pockets of dislocation in reinsurance and in particular retrocession, which Vickers provided some colour on.

Asked about the challenges in placing certain aggregate cat bond layers, such as witnessed in a recent transaction feature MS&AD Holdings insurers, Vickers noted that, “I think it’s always a price issue.”

“I don’t think we can say aggregate capacity is readily available, anywhere in the world. They were completed, I mean, they are not easy, they haven’t been easy for a long time,” Vickers explained.

On how renewals went for aggregates at the April 1st juncture, Vickers said it was another case of a continuation of trends seen in January.

Going on to say, “A lot of the aggregates are placed on a package basis, leveraging other lines of business or other overlying layers in order to get them placed.

“It’s it’s a product that buyers really want, but it is still a difficult product to place.”

Finally, Vickers discussed the retrocession renewals that were seen in April and still sees this as the market segment where challenges are the greatest right now.

“There’s a whole other story going on in the retrocession market for the first of April, that’s a different, a niche market, but that’s a very different and becoming quite complex area,” Vickers said.

Adding that, in his view, “Retro rates are not coming down. But the argument I think now is much more one around coverage.”

One area of concern in the retrocession market was the situation in Ukraine, with some concerns in the market about the potential for unexpected losses to manifest.

“It plays back to this thing about the clause, the language. I mean, the industry’s been caught with COVID claims, and people weren’t quite sure what was being covered. I think that some of the losses, or potential losses, that are playing out from the Russia – Ukraine situation, indicate a similar sort of, perhaps lack of clarity, about exactly how policies are going to perform.

“We did see, generally, reinsurers looking much more closely at wordings and trying to to make sure it was clear what’s being covered, and eliminate as many grey areas as possible,” Vickers told us.