Three of the world's four largest reinsurers grew faster at Jan. 1 renewals than they did a year ago, despite what has been described as disappointing rate increases.

Reinsurers said they maintained underwriting discipline, and the growth was justified by the cumulative rate increases seen in 2018 and 2019. The premium growth in some cases was also influenced by large, structured transactions, where the biggest reinsurers construct large, tailor-made reinsurance transactions for specific clients. These big deals do not renew regularly, and they are not always in line with key renewal dates, so their presence or absence can cause big fluctuations in premium volume.

Higher volume

Swiss Re AG's renewed premium volume was up 19% at Jan. 1, compared with an 8% increase last year. However, the reinsurer only increased rates on its renewed business by 1% at Jan. 1, versus 2% a year ago. Similar patterns were seen at both Hannover Re and Scor SE.

Munich Re Co. was an outlier; its renewed volume increase was 6.3% versus 19% a year earlier. But that difference was caused by the nonrecurrence of some large deals Munich Re completed Jan. 1, 2018. Without those deals, the 2018 and 2019 increases would have been very similar, Torsten Jeworrek, Munich Re's reinsurance CEO, told analysts Feb. 6. Munich Re's rates were flat on average following rate increases of 0.8% at Jan. 1, 2018.

Other reinsurers' premium volumes were also affected by structured deals. Scor in its investor presentation on the Jan. 1 renewals said that without one large deal, its Jan. 1 growth would have been 8% instead of 9.7%. It concluded no large deals at Jan. 1, 2018.

Swiss Re said in its presentation that 14 points of its 19% growth at Jan. 1 was driven by either large or structured deals. A spokeswoman for the company said Jan. 1, 2018, growth was entirely driven by such transactions.

But even when taking the large deals into account, the reinsurers managed to grow their core business by the same or more than they had at Jan. 1, 2018, despite lower rate increases.

Staying disciplined

The Swiss Re spokeswoman noted that the 1% average rate increase it achieved at Jan. 1 built on the 2% it put through at the same renewal period the previous year, meaning that this year's growth is happening at "even more attractive rates."

"We were able to not only grow our core business but also achieved significant growth with transactions at profitable terms," she added.

A spokesman for Munich Re said that although rates were flat at Jan. 1, the reinsurer did see prices rise by about 0.8% at the same time last year. He also pointed out that, adjusted for increased U.S. dollar interest rates, the average price went up by 0.4%.

"Obviously prices are still low, but we are confident that the new business written will meet our profitability expectations," he said.

Reinsurers also noted a general increase in demand and said there were pockets of opportunity to grow profitably. At Hannover Re's Jan. 1 renewals presentation to analysts in February, CEO Ulrich Wallin said the company had grown in Germany and the U.S. thanks in part to increases in primary insurance rates. The company also grew its relationships with clients in China "quite significantly," and saw more positive terms and conditions than it did in 2018, Wallin said.

Better price hikes to come

While some found increases at Jan. 1 disappointing, many reinsurance CEOs have pointed out that this particular renewal date is dominated by European business, which did not suffer heavy catastrophe losses last year. They expect the upcoming renewals at April 1, June 1 and July 1 to yield bigger increases because of the losses business renewed at those dates sustained in 2018.

The April 1 renewals are dominated by the Japanese market, which was hit hard by typhoon Jebi. The U.S. market, which sustained billions of dollars in damage by hurricanes and wildfires in 2018, is the focus for June 1 and July 1 renewals.

Munich Re's Jeworrek told analysts on Feb. 6 that his company expects "more positive and significant price increases" at the upcoming renewal dates given the "bad loss experience" those regions suffered over the last two years.