Retro market to seek greater precision & clarity on coverage: Marcell, Aon

Retrocessional reinsurance markets are likely to seek greater precision and clarity on what they are covering at the renewals in 2021, according to Andy Marcell, CEO, Aon Reinsurance Solutions.

This is likely to entail a switch back to offering more retro reinsurance coverage on a named-peril basis, as well as a re-examination of key terms and conditions (T&C’s) at the January 1st 2021 renewal season.

Marcell was speaking during Aon Reinsurance Solutions’ virtual media briefing held in place of the cancelled Monte Carlo Rendez-vous.

Alongside senior executives from the reinsurance broking unit of Aon and its capital markets or insurance-linked securities (ILS) focused unit Aon Securities, Marcell discussed the state of retrocession and what markets, both traditional and collateralized, will be prioritising during their renewal discussions with cedants this year.

“I think that the retro covers at 1/1 and beyond will, named peril or all peril policies, there’ll be greater clarification of what that means,” Marcell explained “So, all perils policies and follow-the-fortunes clauses, no doubt the retro providers will be seeking greater clarity on what is written in the original book and what coverage is afforded.

“I think mostly there’ll be a pivot towards more named peril cover and again, they’ll see greater clarity in the precision as to what is covered.”

Really understanding their exposure may be more important, in terms of risk adjusted returns, than pure rate right now, Marcell feels.

The retrocession market has seen its products breadth stretched, through the shift to ultimate net loss (UNL) covers that were less well-defined, in terms of coverage, as well as through products that offered protection in a pillared, or other manner.

On defining the terms of protection more accurately and the precision of coverage terms, Marcell said, “That is, I think, probably more important than whether they get a 10% rate increase or a 20% rate increase, in all honesty. I think that’s where you’ll see a lot of attention.”

We’ve written before that terms and conditions associated with reinsurance, retrocession and insurance-linked securities (ILS) renewals, as well as the way risk is sourced, can be just as important as rates at when it comes to a renewal, in determining the actual risk adjusted returns achievable through a contract.

ILS funds have been embracing this in 2020, with a definite shift to more remote layers of reinsurance programs and to a tightening of terms following their re-examination.

It seems the same will be true of the key January retro reinsurance negotiations, when many of the largest retro programs are up for renewal.