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Reinsurance in 2022: Top US-exposed reinsurers register double-digit growth for fifth year running

Industry ceded premiums as % of total DPW since 2011_lead.jpg

Reinsurance relationships play a crucial role in the insurance industry, providing insurers with capital relief and risk management for short-tail attritional and catastrophic losses as well as longer-tailed casualty losses.

In this note, we examine Schedule F data to see historical trends for the industry, and dive a bit deeper to look at the essential role of reinsurance for InsurTech carriers as well as the Florida market.

Note: this analysis is based on unaffiliated relationships only; the underlying data excludes intra-company relationships.

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First, the top US-exposed reinsurers grew premiums in double digits for the fifth year in a row

In the past five years, reinsurers assuming US P&C risk grew assumed premiums on average by 13% year-on-year. Growth in 2022 was also in line with this average, at 13%.

The following chart shows the top reinsurers and their assumed premiums from 2018 to 2022.

Top reinsurers in 2022.png

We see that the top reinsurers continue growing assumed premiums, benefitting from the hardening reinsurance market. Only Munich Re significantly reduced assumed premiums in 2022, but that was after significant growth between 2020 and 2021.

Showing assumed premiums, in and of themselves, will not tell the whole story. We examined ceded premiums as a percentage of total premium to see if reinsurance utilization is increasing or decreasing.

The following chart shows the P&C industry’s ceded premiums as a percentage of total direct written premiums from 2011 through 2022.

Industry ceded premiums as % of total DPW since 2011.png

We see that 2018 saw an 11-year low in ceded as a percentage of DPW, and since then, the purchasing of reinsurance has gone back up. In examining the top cedants in 2022, the group has shown stability in ceding premium as a percentage of DPW.

The following table shows the top cedants in 2022. The table also includes ceded premiums for the past five years as well as the percentage of those ceded premiums to the total direct written premium written for the given insurer.

top cedants in 2022 IPCD chart may 16 2023 v2.png

Consistent with the industry, the larger players have generally ceded more premiums to reinsurers since 2018, both on an absolute and relative basis.

Recently concluded first quarter earnings conference call commentary has been positive on the stability of rate increases on the primary side which translates into a greater likelihood that cessions to reinsurers should also continue pari-passu.

On the other hand, if the economy does head towards a milder recession and contracts, we may be approaching a peak year in premiums for reinsurers.

So far, 2023 has been a tumultuous year for insurers in terms of their reinsurance – demand is growing due to inflation, yet they have had to move up attachment points and retain more volatility amid a harder reinsurance market.

This has a complex overall effect as insurers might be dropping some high-cost premium at the lower end of their treaties but are also facing significantly higher costs.

Second, reinsurance panels for InsurTechs are shifting materially

Reinsurance relationships are all about stability. A reinsurer will look deep into an insurer’s business, and an ideal partnership extends over many years as both insurer and reinsurer ride out any noise, knowing that the fundamentals of the cedant’s business are healthy for the long-term.

However, for a newer entrant, reinsurers will try to get in early, weather the losses and hope to establish a long-term relationship. As we have discussed in our prior notes, InsurTech carriers, as the newer entrants, have struggled to emerge and deliver on their underwriting promises which has resulted in some of their reinsurer partners reevaluating their relationships.

In examining the reinsurers who provide coverage to InsurTech insurers, Root and Lemonade, we see that only one reinsurer for each of these insurers has stayed on the panel for the past five years.

The following table shows the panel shift for each year between 2018 and 2022.

Reinsurers panel shift in last five years at Root and Lemonade.png

For Root, we see that Topsail (a Bermuda captive) has remained as a top-five reinsurance participant for the past five years. For Lemonade, only Mapfre.

The following table shows each InsurTech’s ceded premiums, along with its percentage of DPW, and the year-over-year growth between 2021 and 2022.

Root ceded premiums.png
Lemonade ceded premiums.png

As InsurTech carriers’ losses have continued to mount, we would not be surprised to see this capital relief spigot significantly reduce further.

Third, Florida remains a shaky, reinsurance-dependent marketplace

Not a day passes by without a mention of the state of affairs in Florida. Recent months have focused heavily on the changes in the tort climate and the subsequent regulatory efforts to tackle runaway loss costs.

The following table shows the top cedants in Florida, for the past year, and the percentage of those ceded premiums to DPW.

top florida homeowners insurers premium ceding table IPCD may 16 2023.png

There looks to be stability in terms of ceded premium as a percentage of DPW, but the more interesting aspect lies in who provides the reinsurance in Florida.

While it isn’t a surprise, we see further evidence of the difficulties in the state as the Florida Hurricane Catastrophe Fund is attributable for 11% of all ceded premiums.

The table below shows the same top cedants as above with each cedant’s top five reinsurers. Notice that FHCF is a significant portion of each.

top florida homeowners insurers ipcd table may 16 2023.png

Digging deeper into the premiums ceded to reinsurers, we looked back at the past five years and pulled the top 20 reinsurers for 2018 and 2022, for the major cedants shown above.

Note that this premium tabulation is not restricted to catastrophe-exposed business only, and due to the inherent limitation of Schedule F data, will also pick up other lines. Even then, this can serve as a good proxy for the direction of the marketplace.

The following table shows the list of these reinsurers and the total premiums ceded to them in 2018 and 2022. Notice that most reinsurers have taken on more ceded premiums, although the bottom of the list highlights a few reinsurers who have largely exited these relationships.

Top Florida-exposed reinsurers with premiums ceded.png

In its recent annual meeting at Omaha, Berkshire Hathaway had talked about its opportunistic stance in this marketplace.

As our news team revealed last week, Citizens received an offer of around $1bn in capacity from Berkshire Hathaway for its 2023-2024 risk transfer program.

If the upcoming renewals prove attractive, the list above will likely be reordered when we examine the 2023 Schedule F data!

In summary, reinsurance utilization in the US P&C industry up to 2022 has been back on the rise from the perspective of both exposure and pricing.

The InsurTech carriers who have ceded a majority of their premiums to reinsurers are finally seeing a slowdown of this activity though their utilization remains high.

Florida continues to rely on FHCF though industry reinsurers have also taken on more risk.

Taking a step back, if the US economy does head towards a milder recession, and hard market conditions in reinsurance continue to prevail, it remains to be seen what cascading impact it may have on the primary insurers and their reinsurance appetite.

The "Top Florida-exposed reinsurers" chart has been updated to reflect Gallagher Re.