XPRIMM: 2020 was a challenging year for the insurance industry. How do you see the results of the year for Willis Towers Watson?
Julia KHMELNITSKAJA: Trading environment was very tough in 2020 across the globe with Russia not being an exception. Quite a few projects were either cancelled or delayed and insurance budgets scrutinized. Having said this, 2020 was very successful for Willis Towers Watson treaty team in Russia with close to 40% growth and a handful of new business placed.
XPRIMM: How would you comment on the situation with treaty renewals in January 2021 in the context of the current COVID crisis? Have there been any significant increases / decreases in the capacity and cost of reinsurance programs?
Julia KHMELNITSKAJA: The market approached 1st of January renewals with UNCERTAINTY as a hallmark. Uncertainty as regards development of COVID losses and reserves, reinsurers' results, pressure from regulators to settle losses and social inflation, modeling which also includes modeling of secondary perils, EPI re-estimations and estimations going forward, contractual wordings and more importantly retrocession.
This renewal was about negotiation of terms and conditions in the broader than usual way. Reinsurers anticipated double-digit price rises. In fact, prices were only from 3% to 5% up on loss free accounts. This is far away from the level of rates increase in the facultative market. Price was only a part of the game and in some cases not a decision-maker. More attention was paid to discussion of the wordings. New clauses excluding communicable diseases lacked comprehension from all the parties with constant changes introduced and considerable impact from lawyers. Many wordings were reviewed from scratch which was time-consuming and painful.
Several Russian clients managed to achieve capacity increase even with some initial resistance form reinsurers. It is worth mentioning that Russian ruble lost 25% in course of 2020. Part of the capacity increase was to reinstate ruble devaluation.
One needs to appreciate a long period of soft reinsurance market with unfavorable investment climate. Reinsurers were desperate to change the trend and COVID helped with this better than any Nat Cat loss. Only solid level of reinsurance capital prevented prices from the dramatic increase. In general reinsurance market demonstrated great resilience.
XPRIMM: Could you note any changes in composition of the leading reinsurers last year? Has the "alignment of forces" changed?
Julia KHMELNITSKAJA: In Russia "alignment of forces" remains unchanged.
XPRIMM: What forecasts for 2021 would you give for the Russian reinsurance market?
Julia KHMELNITSKAJA: In would be fair to start with the international market. Beginning of 2021 already showed same UNCERTAINTY. At the macro level this is as regards economic recovery with some hopes for the brighter future though as vaccination started. 2021 will be core for development and actual reimbursement of COVID-19 related claims. In addition to this as early as in February we already saw high Nat CAT losses activity. Texas winter storm on its own might result in losses to the industry. Another question to modeling. In addition, reinsurers failed to achieve rates rise they were hoping for at 1st of January renewals. With this is mind, it is obvious that hardening of the international reinsurance market will continue through 2021.
The same trend for Russian reinsurance buying. Reinsurers will push for increased retentions and rates. Reinsurance buying will be about the balance between reinsurance spending, level of retention, capacity available and rating. In the backstage we have competitive direct market with low rates and deductibles, unprecedent level of heavy industrial risks protected under treaties, losses and more to the point constant ambitions for treaty capacity increase. Depending on the shape of the facultative market we will see more risks ending in Russia and Russian treaties rather than internationally. For obvious reasons reinsurance buying won't be straightforward.