One year after the rise of the toughest property reinsurance market seen in a generation, conditions have improved markedly, with adequate capacity, more consistency on wording and structures, and smoother renewals, according to several reinsurance broking firms.
Reinsurance capacity managed to keep pace with demand on Jan. 1, 2024, per recent reports from Guy Carpenter, Gallagher Re and Howden.
“Only 12 months ago, property catastrophe reinsurance was considered an unpredictable and volatile class warranting reduced capacity and changes in coverage, attachment and pricing,” said Tom Wakefield, CEO of Gallagher Re, in the broker’s “1st View” report. “This year, property supply and demand has snapped back into balance, with returns for the first three quarters of 2023 exceeding reinsurers’ increased cost of capital.”
Primary insurers were able to secure more coverage for their property tail risk in this renewal season. This trend should continue through the rest of the year’s reinsurance renewals, according to Gallagher Re’s report. Gallagher Re attributed some of the improvement to a few large wind events in the U.S. However, insured losses due to natural catastrophes still exceeded $100 billion in 2023, and, in the U.S., reinsurers “adjusted their view” of severe convective storm (SCS) frequency with some added pressure on price as a result.
In its recap of the Jan. 1 renewals, Guy Carpenter noted that some clients in specific geographical regions still “faced challenges.” Reinsurers also pressed more for price increases on lower program layers, while deploying capacity more freely for loss-free segments and layers. The reinsurance broker cited a pricing range of flat to single-digit increases for non-loss impacted programs and 10% to 30% for programs with losses—though there was a “wide range of outcomes” around the averages.
“The January 1 market reflected more balanced trading conditions providing cedents improved opportunities to achieve their objectives while maintaining key reinsurer relationships,” said Dean Klisura, president and CEO of Guy Carpenter, in a statement. “Technical discussions were essential to reinsurers’ increasing appetite and capacity allocations.”
According to Howden’s reinsurance broking team, expanded capacity from traditional carriers, as well as new capital flowing into the catastrophe bond market, helped to improve conditions on Jan. 1.
“Reinsurers’ plans were better telegraphed in the lead up to 1 January 2024, meaning the tensions and dislocations that characterized last year’s renewal were far less acute,” Howden said in an outlook report titled “A New World.” The broker added, “Pricing was stable overall, with any significant variation by territory or line of business informed by loss experience.
However, Howden also suggested that several specialty lines faced some reinsurance pressure due to geopolitical risks and ongoing conflicts, particularly aviation, political violence, and terrorism. Reinsurers also showed a limited appetite for nonnatural perils, especially strike, riot, and civil commotion cover, the broker said. Howden reported a 3% increase in rates-online for property catastrophe reinsurance compared to +37% last year.
