Marsh Re’s Leon Janeke expects Baden-Baden to “confirm and further entrench” a buyer-favourable reinsurance market ahead of the 1 January renewals, with reinsurers set to take a greater share of large and catastrophe losses as the market rebalances risk.
In an interview ahead of the industry event in Germany, Janeke, head of UK Property & Casualty and London Europe at Marsh Re, said reinsurers’ share of insured losses had fallen from around 20% in 2023 to approximately 12%, but he expects it to increase through 2027.
The market remains competitive amid abundant capacity and reinsurers’ search for profitable growth, he said, although it is “not growth at any cost”.
Janeke told Reinsurance News that the market is competitive, but not carefree, adding that reinsurers are willing to partner more broadly with cedents in the current environment.
He added, “There’s a clear focus on price as we head into Baden-Baden and look ahead to the 1 January reinsurance renewals and beyond. Cedents are also looking for value in their placements and seeking to address issues beyond traditional risk transfer. We’re looking more broadly at themes such as volatility and how to control for it.
“So, it’s very much a competitive market, which I would describe as a buyer’s market, but certainly not a carefree one at this point.”
Discussing how the property and casualty markets differ as the renewals approach, Janeke suggested there’s “considerably more optimism” in the property market than in the casualty market currently, from both buyers’ and sellers’ perspectives.
The executive continued, “Starting with property, the reason I use the word optimism is that reinsurers’ share of insured losses has fallen significantly. Marsh has previously highlighted that the reinsurance share stood at around 20% of insured losses in 2023, but has now dropped to approximately 12%, leaving 88% with original cedents.
“That reflects an environment that is currently very profitable for reinsurers, particularly given the lack of major catastrophe losses in the property market. That underlines the optimism we’re seeing.
At the same time, buyers have achieved pricing reductions over the past several years and have been able to bring contract coverage back into line.
“We’re now seeing broad consistency in contract coverage across the market, with relatively few exceptions in terms of the differences between the coverage reinsurers provide to individual cedents. Of course, coverage still varies between cedents at a market level.
“The casualty market is more nuanced, particularly for cedents with exposure to US liability. There’s a much greater degree of caution in this area, owing to familiar concerns around social inflation and reserve uncertainty in long-tail lines of business.
“As a result, the picture is much more mixed in casualty and is far more account-specific. We’re not seeing the same level of optimism in the casualty market at this point.”
Expanding on negotiating leverage ahead of the 1 January renewals, Janeke noted some differences between property and casualty cedents, while acknowledging that many have exposures to both and purchase reinsurance across both segments.
He went on, “From a property perspective, particularly where property is the defining element of a cedent’s reinsurance purchase, there is meaningful negotiating leverage. This is especially true for cedents with clean or very good loss experience over the past several years, which is the case for the vast majority.
“There remains a focus on high-quality exposure data, particularly modelling data. Where that is coupled with a narrative around disciplined underwriting, a well-articulated risk transfer strategy and structures that are well understood at this point in the cycle, cedents have considerable leverage.
“That includes placements without significant structural changes, such as changes to retentions, as well as those where there has been some element of volatility protection in recent years. For those cedents, I think there is tremendous leverage in their reinsurance purchases at this 1 January renewal.
“Looking at multi-class buyers purchasing across property, casualty and specialty lines, we’re seeing the reinsurance market move closer to what buyers have been seeking in terms of broad-based relationships and longer-term partnerships.
“We believe reinsurers have listened to that message and are looking to partner more closely with cedents across their reinsurance purchases than we’ve seen in a very long time.
“There is also a less selective approach, with less cherry-picking of cedents’ exposures. If reinsurers genuinely want to partner with best-in-class cedents, it’s critical that they take a cross-class approach.
Turning to client priorities, we asked Janeke what Marsh Re is hearing from cedents ahead of 1 January. The executive observed that at a high level, clients are looking for better risk transfer value, which, in his view, comes down to two main elements: price and coverage.
Janeke continued, “Clients are definitely looking for further savings in this renewal from their reinsurance panels, but they also want better risk transfer value through enhanced contract coverage.
“As I mentioned earlier, I think we’re back in a market that could broadly be described as concurrent in terms of contract coverage, although there are some areas where that consistency is beginning to fray at the edges. I expect coverage to be broadened in some instances, but I don’t anticipate that being a wholesale theme across the renewal.
“The expectation of further price savings is also firmly established in clients’ messaging and well understood by the market. There’s a clear anticipation of what’s to come on that front.
“We’re also seeing clients look for greater flexibility in programme design as a way of generating better value. That includes multi-year arrangements, and I expect a shift from paid to prepaid reinstatements to become more of a theme this year.
“We’re also seeing considerable flexibility from reinsurers and a willingness to consider value-added elements within certain products, whether frequency or volatility covers.
“We believe there’s a clear appetite to explore how reinsurers can use modelled expected loss to deliver more value through programme design, particularly on the frequency side.”
As the interview drew to a close, the conversation shifted to what Janeke anticipates Baden-Baden will tell us about the key upcoming renewals.
“I expect Baden-Baden to confirm and further entrench the view that this is a buyer-favourable environment. I use the word ‘entrench’ deliberately, because I think that’s exactly what the discussions will do,” the executive said.
He concluded, “We expect some risk rebalancing to take place at the 1 January renewals, by which I mean a shift in the share of large and catastrophe losses borne by reinsurers. As I mentioned earlier, reinsurers currently account for around 12% of insured losses, and we expect that share to increase through 2027.
“I don’t anticipate wholesale changes to retention levels. We are seeing some scope for retentions to come down in parts of Europe, particularly in the French and Nordic markets, but I wouldn’t describe that as a broader European or UK trend at this point. So, in summary, I expect risk rebalancing and a further entrenchment of the buyer-favourable environment.”
