Gallagher Re’s Spenner: Cedants seeking balanced approach to risk sharing at 1.1

Recent Atlantic hurricane activity and elevated European floods do not represent “shock losses” for the industry despite their devastating impact, according to Gallagher Re’s Dirk Spenner, who highlighted a demand from cedants for a more balanced approach to risk sharing at upcoming renewals.

Spenner, who formally took the helm as international CEO for Gallagher Re in June, said there was no sign of “disorder” across the reinsurance market despite the impact of hurricanes Helene and Milton and the widespread storm and flooding activity across Central and Eastern Europe, pointing to a more “stable” 1 January renewal.

“We've seen two hurricanes and we've seen a European flood, but we're in a perfect reinsurance marketplace that isn't in any form of disorder,” he told The Insurer.

“These catastrophes look dramatic on television, and they clearly have a devastating impact to many individuals, they cause pain and suffering and we're certainly not complacent about that, but the impact into the (re)insurance industry appears to be fairly moderate, and we're looking at a very steady and operational reinsurance market into 1.1,” he continued.

“Is it a reminder of the riskiness of our business and of the volatility of the underlying risk, of course it is, but it's not going to have a fundamental change in the expected risk pricing coming up to 1.1.”

Earlier this month Gallagher Re estimated that public and private insurers covered $108bn of natural catastrophe losses during the first nine months of 2024, 5 percent above the average for the past decade, with the total driven by a higher frequency of small and mid-sized events.

The costliest event during the first nine months of the year was Hurricane Helene, which made landfall in Florida at Category 4 intensity in late September. Gallagher Re has estimated insured losses from the storm at around $12bn. Hurricane Milton is not included in the nine-month tally as it did not impact Florida until early October.

But even including the impact of Milton – currently pegged at anywhere between $17bn and $50bn – and recent floods in Central Europe, Spenner said the scale of losses so far in the second half of the year would not “fundamentally change” reinsurers’ fortunes.

“We've done a lot of internal analysis that we've equipped our brokers with, that clearly indicates that those losses obviously have huge headline numbers on a gross basis, but how they flow through the system means that the reinsurers are still looking at a very profitable year 2024,” he explained.

“It’s important to bear in mind that we're not talking about a scenario that no one has on their radar, that no one has pricing tools for and no one is aware of.”

Spenner – who took over the role from the long-serving Tony Melia – noted that the way losses flow through the system will have an impact on reinsurers’ global and European cat books, but stressed that 2024 remains a “very profitable year”.

Gallagher Re and its fellow reinsurance intermediaries in Monte Carlo called on reinsurers to walk back some of the improvements achieved last year in what was described as a generational hard market for cat, most notably the significantly higher retentions.

Spenner noted that those higher retentions have meant that the bulk of claims from the last two years of heavy secondary peril losses have fallen on insurers. The executive acknowledged there will be pressure from brokers and clients to lower retentions, with cedants seeking to rectify a perceived “imbalance” in the sharing of risk.

“We had strong messaging in Monte Carlo about the robustness of the reinsurance industry that really regained strength over the last 18 months, and that's unchanged,” he said.

Spenner added: “We have full understanding and support that reinsurers want to understand the exposure landscape as best as possible, but at the same time, once that's clear they need to maintain coverage at an appropriate level.

“Reinsurers have pushed significantly on retention levels over the last two years and that has left a situation where original cedants recover relatively little from certain events, events where they still ideally need support from the reinsurance market.

“Not everyone has a necessarily satisfactory retention level, and we’ve seen the risk sharing between insurer and reinsurer move towards the benefit of the reinsurers. I want to look at those levels and areas where we can balance out the sharing or risk in an appropriate way.”

Spenner also acknowledged that an increase in strikes, riots and civil commotion – driven in part by more than 50 countries holding elections this year – has led to a tightening of property treaty coverage for such events.

“The natural reaction from reinsurers shouldn't be just to put out an exclusion to deal with difficult subjects. Our cedants still have to deal with it, and their original clients will have to deal with it.

“The urge to the reinsurance market is not to act in an overly simplistic manner, but to actually engage with the clients and to establish together the nature of the exposure and then feed this appropriately into the reinsurance structure.”