by Chiamaka Ajeamo
The outcome of the January 2021 reinsurance renewals and expectations for the rest of this year suggest “real repricing of risk” is underway.
The forecast, according to analysts at RBC Capital Market, may continue into 2022.
According to the analysts, they view January’s renewal pricing trends as indicative of reinsurers and of course insurance-linked securities (ILS) funds repricing risk to ensure sustainable returns in reinsurance going forward, rather than just trying to recoup losses incurred last year.
“Rates in 2021 increased almost across the board; this was the case for both losses affected business but more positively also for non-loss affected business which suggests to us, a real repricing of risk, RBC Capital Market’s equity analyst team explained.
On whether there is more rate increase to emerge during the year, they noted that the terms and conditions at which renewal contracts were signed will determine but they suggested that if reinsurers really want to secure their profits going forwards, they need to be pushing for further increases at future renewals.
“Improvements being made here suggest greater return potential, but as ever as the devil is in the detail and also dependent on specific loss activity that occurs within the year but what was most positive in our review, was that even loss free business saw price increases. This suggests to us, that risk is being repriced rather than reinsurers simply looking for payback for past claims. In addition, it shows that primary insurers despite ample capacity in the market are paying more for their cover,” RBC’s analyst team stated.
Going further, they noted that April and mid-year (June / July) renewals will play an equally important role in setting underwriters back on a road to sustainable profits.
“Normalised combined ratios should improve as prices continue to increase and begin to earn through, beyond 2021, we would expect that margins continue to improve for the insurers even if reinsurance pricing does not materially increase.
“Factoring into this positive outlook are the terms improvements that have been seen, as well as primary price acceleration that promises to pay through to reinsurers via quota share reinsurance arrangements and better priced 2021 renewal business are expected to earn through into 2022.
“With pressures on the insurance and reinsurance industry from the COVID-19 pandemic likely to persist, the need to protect capital and profits is clearly a motivator in the renewals from January.
The analysts added that, while capital remains abundant the rate increases are likely to continue being less acute, but incremental rate gains will continue to be seen positively for reinsurer and ILS fund profits going forwards.
“As we have said many times though, the key to sustainable profitability in reinsurance and ILS is in securing renewal rates that cover loss costs, cost-of-capital, expenses and a margin over the longer-term.”
Meanwhile, Nigeria insurance brokers are already playing safe in this renewal season by preferring to do business with majorly insurers with a huge capital base and have attained positive results in the recapitalisation journey.
According to a broker who pleaded anonymity, majority of brokers are very particular about the underwriters they give business due to the recapitalisation exercise and capital base of the firm.
He said, “No doubt the first phase of the recapitalisation exercise has been suspended by a court order, however, brokers are employing the results accomplished so far by companies to determine those they give businesses to.
“The reason for this is because we don’t want to give businesses to underwriters who cannot ascertain their success in the recapitalisation journey or even pay claims to policyholders when the need arises. Hence, capital base and successes recorded in the recapitalisation exercise by companies is a major consideration for business placement in this year’s renewal season”.
Commenting on this development, in a report, the Executive Secretary, Nigerian Council of Registered Insurance Brokers (NCRIB), Fatai Adegbenro, said he was not sure that the recapitalisation would affect business placement since no company has been declared failed or bankrupt.
Adegbenro, however, noted that it is within the professional dictates of the insurance brokers to place their business (risks) with underwriters that have the capacity to serve their clients well, which is being able to pay claims when it arises.