MILLIRE_2019_Annual Report

Milli Re Annual Report 2019 58 optimisation of underwriting, risk and claim management procedures through integration of technological solutions to the system as well as the decisions aiming to stimulate new capital flow are the milestones of Lloyd’s new strategic plan which will be in effect starting in 2020. As has been the case for the last couple of years, tailor-made approaches of reinsurers were prevalent during 2020 renewals as well. In line with this strategy as reinsurers assessed each business based on its merits, such as loss track record, underlying portfolio and the geographical scope of the cover; while some buyers were able to secure risk-adjusted rate reductions, some others renewed their treaties at flat or higher costs. Despite the fact that reinsurers were considered comparably more diligent, most buyers were able to obtain required level of capacity. Although the programmes, for which firm orders had been given quickly, were renewed smoothly, some others which have necessitated tougher negotiations took longer than anticipated to place. Looking at the 2020 retrocession renewals, while total supply contracted as the share of trapped collateral in the total alternative capital amount increased as a consequence of significant loss creep related to catastrophe events which occurred in 2017 and 2018; strong demand conditions for retrocession capacity persisted. On the other hand, issues such as the suitability of pricing methods, global climate change which has been causing substantial increases in the severity and frequency of the catastrophe losses in recent years, put pressure on retrocession costs. In line with these developments, while some buyers gravitated towards alternative products like cat-bonds, others faced increased costs for retrocession cover, unfavourable changes and adjustments in contract terms as well as late renewals. Europe While 2019 passed quite calmly in respect of the natural disasters in Europe, Winterstorm Eberhard and a series of flood impacting the Mediterranean Coasts; mainly Italy, France and Spain stood out as the major catastrophes that occurred during the year. Due to the ongoing competitive market conditions, while Europe-wide loss free cat programmes renewed with stable costs or up to 5% rate decreases, loss impacted cat programmes experienced price increases changing between 2.5% and 10%. On the other hand, as far as risk programmes are concerned, loss impacted Europe-wide programmes experienced up to 5% to 15% price increases, while upward movements were capped at a maximum of 20% for Central and Eastern Europe loss hit risk programmes. Europe-wide loss free risk programmes renewed with up to 5% rate reductions. America Following Harvey, Irma, Maria and Michael which had devastating impacts in 2017 and 2018; Hurricane Dorian which subduedly impacting Florida coast was the only noteworthy event of 2019 tropical hurricane season. Despite the contraction observed in the alternative capital, especially in the ILS funds, as a result of the incremental rises in trapped capital throughout the years, reinsurance capacity remained at adequate levels to meet demand. The price pressures were subdued on buyers who secured premium increases with the help of their growing portfolios. While capacity provided by Lloyd’s market dropped off as some syndicates ceased their underwriting activities; however existing and new players have effectively filled the gap. Loss affected cat programmes saw risk-adjusted price increases between 10%-20%. In respect of risk programmes, due to the price improvements in favour of capacity providers, substantial upward adjustments changing between 10%- 50% were observed based on the programme performance. While loss free risk programmes renewed at stable to 10% up, this ratio was capped at a maximum of 5% for cat programmes. After a calm year in view of natcat events in Canada, price movements in respect of cat programmes showed a similar trend with 2019 renewals; risk-adjusted rate increases between 5% and 10% were recorded in loss hit cat programmes; whereas loss free cat programmes saw price movements reaching up to 5%. Rates of the risk programmes with loss experience affecting the lower layers had 10% to 40% price increases, for loss free risk programmes, rate increases were 10% maximum. GLOBAL REINSURANCE MARKET AND MİLLİ RE