Insurers’ bet on Ukraine outcome lost with businesses set to feel the impact

Global businesses face a significant hike in the costs of insurance for political violence and war risks after a gamble by some insurers that the war in Ukraine would have been “over by Christmas” has spectacularly failed.

Reinsurance broker Gallagher Re has issued its initial report on the pivotal reinsurance renewals warning the global reinsurance market has “endured a complex and in many cases frustrating renewal process which has gone down to the wire”.

According to the broker, loss-affected accounts for the Political Violence and Terror (PVT) market have seen rate movements of 50% at the latest 1.1 renewals, while even loss-free accounts have seen 30% rate increases.

 It added that the market saw the composite product being unbundled and clients being forced to purchase stand-alone PVT structures to protect their portfolios.

Also, according to Gallagher Re, there was a tightening of Loss Occurrence definitions with the Time and Distance restrictions being added for all perils, along with restrictions being imposed for Russia, Ukraine and Belarus exposures. 

It added that reinsurers differentiated their support to those clients who have demonstrated a good understanding of their aggregates and control of their portfolios post the Ukraine/Russia crisis. 

Gallagher Re’s global CEO, James Kent (above) said as anticipated before negotiations began, the two areas of most constraint at the renewals were peak-zone US property catastrophe capacity and coverage for strikes, riots & civil commotion and war.

In most other lines and regions, buyers had largely been able to source capacity, albeit at a higher cost and in many cases changed structures with an increase in attachment points and the raising of the “floor” on minimum rates online, a key focus for many reinsurers.

“The renewal process has been gruelling for participants, many of whom have not faced such a rapid change in market conditions across a single renewal season,” he explained. “Political violence renewals have been especially demanding in terms of finding a market consensus. The differences in opinion between buyers and sellers were aggravated by the perception that there was time to reach agreement on the complex issue of the Ukraine/Russia conflict well in advance of renewals.

“Times of significant market change are always challenging to navigate but we have seen a significant difference in the ways that individual reinsurers have reacted despite a widespread stated ambition to grow premium volumes in what is being viewed as the best treaty underwriting terms and conditions for a generation.

“Some have reached the end of the renewal season with reputations enhanced, exercising a firm, fair, transparent approach based on a commitment to their own view of pricing adequacy. Others who have acted less deftly may find sustaining long term client relationships more challenging, especially once capital and competition rebuild in the global reinsurance market.”

The broker’s  added the renewal saw a divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute.

There has been talk that the tightening reinsurance market would see brokers and insurers heading to the alternative capital market to fill the gaps created by the hardening stance of traditional reinsurers.

However, the broker said there was little signs of such a shift.

“ILS and collateralized markets have seen little signs of new capital entering but lower estimates from certain clients on Hurricane Ian losses has eased some concerns over trapped capital and helped to provide much needed additional liquidity for retrocession buyers in the last few weeks of the renewal,” it explained.