Insights: Sanity Prevailed at 1 July Renewals

The mid-year insurance and reinsurance renewals have come and gone for most corporate and reinsurance buyers. There was largely a sense of sanity and order in the market as capacity and underwriting appetite recovered somewhat. Although underwriters had appetite, the public sector clients were slow in making buying decisions leading to last minute rush in appointments and finalisation of cover.

Capacity was in greater supply and reinsurers were prepared to deploy it, compared to January 1, resulting in over subscription in some programmes. Although, reinsurance pricing continued to increase at the mid-year, the rate of increase was much slower than before and the market was accommodative of buyer’s needs, with less pressure on renewal terms and conditions. The factors that shaped reinsurer behaviour at 1 January renewals are receding or were absent from the market at the mid-year renewals.

“We have seen that those insurers and reinsurers who had been accommodated in yesteryears’ renewals at higher premiums and could not adjust their pricing to align with rest-of-market prices were either scaled down on participation; or replaced all together”, observed Vincent Gota, Head: Facultative.

Maksure Risk Solutions estimates that South Africa, a large facultative buyer into global markets, risk-adjusted property catastrophe reinsurance rates increased 10-15 percent, somewhat a slower pace in comparison to what was at the 1 January renewals season.

It is expected that discussions around pricing of secondary perils such as floods, hailstorms, tornadoes, lighting and earthquake shall intensify and take centre stage as losses from these perils continue to increase in both value and frequency. Reinsurers have already begun to impose lower flood sub limits. The Kwazulu-Natal region has recently, in the last week, experienced a tornado which claimed about four lives. These perils were uncommon nor prevalent in the past 5 or so years.

Regarding treaty renewals, it seems the market had already found a new equilibrium as both reinsurance buyers and reinsurers were largely aligned.

“The sanity that we witnessed in the treaty market could largely be attributed to the fact that reinsurance brokers and insurers had adequately prepared for reinsurers’ expectation, and adjusted their portfolios and reinsurance buying strategies accordingly” said Wilfred Ncube, Head: Treaty & Claims.

Most of the treaty negotiations started early and lead terms secured ahead of time, however, final signed lines were concluded late as markets sought to find new and high rated securities in line with rating agencies requirements.

The price differentials between regional and international reinsurers is also widening as international reinsurers’ prices are reacting slower to African market realities, largely being influenced by the global catastrophe losses suffered recently including hurricane Ian. In 2022, global catastrophic events were slightly higher than the average at 387 compared to 370 from 2002 to 2021. Although Africa’s catastrophic events are increasing, the severity is still limited compared to other global events. International reinsurers who may react slowly to price realities may end up with reduced shares on African business impacting their global portfolio diversification which is now becoming important in light of changing climate patterns worldwide.

“We believe that at current pricing and attachment points, the insurance and reinsurance market has found a sustainable equilibrium point where reinsurers can make acceptable returns while providing adequate volatility protection for insurers,” added Wilfred Ncube.

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About Maksure Risk Solutions

Maksure Risk Solutions is an Afro-Global independent specialist insurance and reinsurance broker with business footprint in Africa, Asia, East & Western Europe, South America and the Caribbean. We provide innovative and tailor-made risk solutions in Insurance and Reinsurance as well as Risk Financing and Actuarial Consulting geared towards capital management and strengthening our client’s balance sheet. Maksure is also one of the major players in Captive Management (Establishment & Management) in South Africa, Mauritius, Bermuda and various other jurisdictions. We have access into the Lloyds of London with a deep understanding of African markets. Our global nature ensures that our clients access quality capacity as well as some of the world’s latest thinking and solutions.