Howden Re View - Marine & Energy, War Political Violence and Terrorism at 1.1.25
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After major corrections in 2023 (triggered by Russia’s invasion of Ukraine), both the marine and energy (M&E) and war, political violence and terrorism (WPVT) markets have seen pricing and conditions ease gradually off the back of increased capacity coming into the Specialty arena. The high-risk macro environment has nevertheless had a lasting impact on risk perceptions and reinforced views around price (in)adequacy.
Continued uncertainty around war-related losses, along with additional (and sizeable) claims in 2024, including the collapse of the Baltimore bridge and a refinery fire in Greece to name a few, had little impact on deployment appetite as an abundance of supply (follow capacity rather than lead capacity) characterised both markets.
Sandy Warne, Global Head of Terrorism and Political Violence, Howden Re and Richard Miller, Managing Director of Global Specialty Treaty, Howden Re said that the issue of oversupply prevailed into 1 January renewals. New entrants, armed with ambitious growth plans, are competing for the same business as incumbents, many of whom have also been seeking growth given historical profitability of the classes.
“This competitive marketplace led to downward pricing pressure overall, with most programmes renewing in a risk-adjusted price range of flat to down 10%,” Miller said.
Differentiation was evident during renewals, with some larger, loss-affected programmes achieving reductions if backed by a record of strong historic and legacy performance. Terms were broadly stable, although cedents successfully pushed back against the applicability of escalation clauses which had failed to be triggered despite ongoing tensions and events in the middle east.
“Where Reinsurers looked to protect the premium on slips, there were instances where event definitions were expanded, such as the SRCC event definition moving out from and 3 cities to 5 cities thus widening cover available,” Warne said.
The highly uncertain loss environment is preventing any additional shift in underlying conditions. Warne said in the WPVT market, the fallout from an unprecedented election cycle last year, along with continued civil unrest around the world and upward revisions to modelled large losses, continues to shape sentiment without triggering any large-scale claims.
At €1 billion plus, losses from the rioting in New Caledonia (although shouldered by the all-risks market) and Civil Unrest in Kenya and Bangladesh, have all served as another reminder of loss potential from SRCC events. Likewise with war escalation in the Middle East, even though to date the losses in Israel have been borne by the country’s war fund thus far.
Similar dynamics prevail in the M&E market. Miller said that although the Baltimore bridge loss remains uncertain (with expectations ranging from US$1.5 billion to US$3 billion), claims were sufficiently diversified across markets to avoid more challenged renewals.
All of which underscores the importance of underwriting teams, track record and relationships.
Core reinsurers are the backbone of the M&E and WPVT markets and have unparalleled influence in shaping conditions. Whilst the element of the unknown in today’s world means this marketplace is unlikely to revert to amplified cycles any time soon, cedents with access to the best advice can still generate savings and / or more cover for their spend.
“The market’s increased willingness to embrace innovation is a trend that is expected to continue in 2025 after another round of generally poor signings at 1 January left many reinsurers open to new ideas and ways to service clients,” said Miller.