Lockton Re's Bisset: Rated carriers pick up retro slack as ILS contracts

An increased appetite among rated carriers for occurrence cover has helped offset a ~$2bn reduction in aggregate capacity in the retro market, Lockton Re’s Bob Bisset has revealed in an interview with The Insurer TV.

Bisset, who serves as chairman of global retrocession and property specialty at the reinsurance broker, said between $1.25bn and $1.5bn of additional occurrence cover was written at 1 January “that was able to fill the hole that was created by the $2bn of agg that went away”.

He said aggregate capacity contracted to around $4bn at the 2022 renewals, having previously been a ~$6bn market.

“It was incremental increases by rated carriers who were already in the retro occurrence game that really stepped up and filled that hole,” Bisset said.

He said these increases saw existing players from Bermuda, Europe and Lloyd’s increase $150mn to $200mn portfolios by around $25mn to $50mn, helping offset the aggregate contraction.

The executive predicted the capacity increases were “going to be sticky” given that they came from existing market players that already held a portfolio of retro business.

ILW market begins trading early

One of the implications of the reduction in availability of aggregate capacity was that the industry loss warranty (ILW) market began trading far earlier than normal, with Bisset reporting “high demand” in the closing months of 2021.

ILWs were bought in late November and December to help offset the lost aggregate capacity, Bisset said.

“Usually, the ILW market really picks up in earnest in February, March and April as we head into the US wind season. To have it so robust in December was a particularly interesting feature for us,” Bisset said.

Retro programs revamped

The 2022 retro renewals saw several major industry names revamp their retro programs as the cost and availability of aggregate cover tightened, with carriers also adjusting their own risk appetites in a bid to address earnings volatility.

Hannover Re, for example, substantially scaled back its retro program at 1 January, shrinking almost all of its core retro protections – which include its K-Cession sidecar facility and a whole-account excess-of-loss layer – with the exception of a slight increase in catastrophe swaps.

Axa did not to renew its group aggregate program, which had in the prior year provided €650mn of cover in excess of a retention of €1.25bn.

Scor increased its sidecar capacity for 2022 with the reinsurer securing a $200mn investment from Swedish pension fund Alecta for its new Atlas Gotland Worldwide Catastrophe vehicle – a move first revealed by this publication.

While the majority of ILS funds reduced capacity at 1 January, market sources indicated to this publication that DE Shaw grew its book significantly, having returned to the retro market in 2020 having largely withdrawn in previous years.