Flat 1 Jan reinsurance renewals as stability returns

January 1 2024 reinsurance renewals were much more stable and smooth than last year due to more favourable supply dynamics, with average global property catastrophe rates flat to up in the low single digits, despite loss hit risks seeing bigger rises, according to brokers. Guy Carpenter said this year’s 1 January renewals took place amid a “responsive” market, reflecting “ample capacity” and a commercial approach to trading partnerships. But it said underwriting rigour remained. The broker said capacity generally ranged from adequate to ample across the market, including when there was additional demand from buyers. “The market increased contract-level consistency on both wording and structural variations, thereby reducing non-concurrencies from the previous cycle, a signal of all parties working toward balance in a complicated market,” it said. These improvements led to a “smoother January 1 renewal period compared with year-end 2022”, continued Guy Carp. However, there were still geographies and client segments that faced challenges to reach market-clearing pricing and structures, it said. “Outcomes were dependent on loss experience and technical, data-driven insights, reflective of reinsurers’ focus on a more in-depth understanding of portfolio dynamics. While property renewals were the focus a year ago, casualty faced more scrutiny this year,” it added. Guy Carp said global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single-digits increases for non-loss impacted risks, and were up between 10% and 30% for loss-hit programmes. But it stressed that there was a “wide range” of outcomes around these averages. The reinsurance broker said pricing pressure was generally most felt at the lower ends of programmes, with any risk-adjusted decreases near the upper portion of placements. It said the property reinsurance market remains “sensitive” to pricing, attachment point and overall structure adequacy, but reported a more “consistent trading rhythm” at 1 Jan. It added that property retrocessional capacity was available and did not constrain reinsurers’ risk appetite, in sharp contrast to this time last year. According to Guy Carp, casualty reinsurance buyers faced pressure on pro rata ceding commissions as well as excess of loss pricing. “While negotiations were nuanced and bespoke, capacity was ample once market clearing terms were met,” it said. Howden paints a similar picture of the reinsurance market in its 1 January 2024 renewal report. It said the renewals were relatively “stable” due to “more favourable supply dynamics”. “Market conditions have improved in the following 12 months, with supply more than sufficient to meet demand,” said Howden. “Nuanced conditions across the (re)insurance market reflect new macroeconomic and geopolitical realities and re-set loss expectations. Improved supply dynamics nevertheless suggests sentiment is now shifting as pricing momentum across different areas of the market drives improved performance and increased appetite to deploy capacity,” it added. The broker said risk-adjusted pricing was flat overall, with any significant variation by territory or line of business informed by loss experience. “Capacity for frequency protection was once again at a premium, but competition further up programmes brought better outcomes. Terms and the scope of coverage were a core focus in 2024, which resulted in improved concurrency overall. Capital inflows supported more favourable market conditions,” it continued. According to Howden, global risk-adjusted global property-catastrophe reinsurance rates-on-line rose by an average of 3% at 1 January 2024 renewals. This was “down considerably” on the average 37% increases recorded last year. “Increased appetite from most markets meant supply was able to meet demand to a degree that was lacking last year. The rebound in the ILS market was an important factor as competition increased for higher-attaching layers, which in turn encouraged new sponsors to enter the market. Terms and coverage scope remained largely stable, although there was a notable shift towards concurrency,” it said. Howden explained that European property-catastrophe renewals were shaped by loss experience and inflation, with more favourable supply dynamics helping to moderate overall pricing increases to low- to mid-single-digits. It said efforts to restructure programmes, which began last year, were extended at 1 January 2024 to countries that escaped adjustments and made sizeable reinsurance recoveries in 2023. These countries included Italy, Turkey and Slovenia, where double-digit risk-adjusted pricing increases were typical during the latest renewals. “Capacity was nevertheless sufficient to see deals over the line,” said Howden. Howden said US property-catastrophe renewals saw stable risk-adjusted pricing, moving within a range of down 5% to up 5%. It said reinsures were willing to support terms and pricing levels “broadly aligned to those established during last year’s renewals”. “Whilst capacity continued to be restricted for lower layers, increased competition further up programmes (driven in part by the ILS market) brought more attractive pricing for mid-to-top layer risks. Risk-adjusted pricing remained stable as a result… [but] regional carriers exposed to severe convective storm losses saw substantial increases,” said Howden. It added that risk-adjusted retrocession catastrophe excess-of-loss rates-on-line were flat at 1 January 2024. “The absence of major losses in 2023, favourable development for Hurricane Ian and increased capital inflows towards the end of the year yielded stable retrocession renewals at 1 January 2024. Whereas last year’s dislocated renewal reflected trapped capital and long-standing investor fatigue, improved performance in 2023 put pressure on price and signings,” it said. Global direct and facultative reinsurance market rates were also flat at year-end following a “major pricing correction” in the previous renewal, said Howden. It added that London market reinsurance casualty rates were flat during latest renewals, on the back of sufficient capacity and market discipline. “Whilst certain reinsurers in the lead-up to negotiations talked-up the need to push for wholesale action to address economic and social inflation, and the attendant risk to reserve adequacy, outcomes ultimately reflected more discerning underwriting informed by loss experience, underlying rate change and prior-year development across individual portfolios,” said Howden. “Outlier outcomes were driven by individual account performance rather than overriding market sentiment. Ceding commissions came under pressure for accounts with US exposures. Several programmes saw decreases in the range of one to two percentage points, with steeper reductions for those that have not performed so well or where underlying pricing deteriorated,” it added. Tim Ronda, CEO of Howden Tiger, said the reinsurance market has stabilised after last year’s “exceptionally challenging” renewal. “Reinsurers were relatively unscathed by large losses in 2023, due in part to more favourable terms and conditions, including higher risk retentions and attachment points. Returns are back at equal to, or greater than, reinsurers’ cost of capital. Activity in the lead-up to 1 January was timely and orderly, and our clients are in a better position to understand their cost of reinsurance and volatility within their retention. It seems we are in a period where stability is rewarding both clients and reinsurers,” she said. Both Guy Carpenter and Howden said the renewals were better for buyers as a result of higher reinsurance capacity. Guy Carpenter estimates that total dedicated reinsurance capital increased by 10% compared with year-end 2022 renewals. “Differing from past years following a major market correction, capital growth was driven by existing reinsurers with no start-up class of 2023,” it said. Howden said dedicated reinsurance capital rose in conjunction with the recovery in asset markets, even if real-terms inflows in 2022/23 were lower than those following Hurricane Katrina and 9/11. It thinks capital inflows will continue in this year. “Dedicated reinsurance capital has recovered to near record levels. Generationally strong pricing, favourable terms and conditions in key lines of business and pursuant, higher returns on capital have enticed capacity back into the market through multiple channels. This, combined with a rapid recovery in traditional balance sheets has meant there was excess capacity for some placements. The structure of the reinsurance market continues to change, with alternative capital now comprising nearly a quarter of the total,” said David Flandro, head of industry analysis and strategic advisory at Howden Tiger.

Flat 1 Jan reinsurance renewals as stability returns

Average global property-cat buyers faced flat or small increases

Want to read this article?

Read Next

Establishing a captive insurer – IPT compliance considerations

Supply chains warned of further disruption and costs as Red Sea risk zone widened

Howden’s data analysis finds insurers should be taking on more cyber risk

Asian investors urge action on nature-related risk

Belgian mutuals say Europe is ‘relegating’ climate in new legislative programme

Establishing a captive insurer – IPT compliance considerations

Supply chains warned of further disruption and costs as Red Sea risk zone widened

Howden’s data analysis finds insurers should be taking on more cyber risk

Asian investors urge action on nature-related risk

Belgian mutuals say Europe is ‘relegating’ climate in new legislative programme

Want to read this article?

Read Next

Establishing a captive insurer – IPT compliance considerations

Supply chains warned of further disruption and costs as Red Sea risk zone widened

Howden’s data analysis finds insurers should be taking on more cyber risk

Asian investors urge action on nature-related risk

Belgian mutuals say Europe is ‘relegating’ climate in new legislative programme

Related Articles