Property reinsurance shock may be over but rates unlikely to fall

Rates may increase for many property reinsurance buyers at year-end renewals, but early indicators are that the sharp price hikes imposed last year won’t be repeated for most cedents. While reinsurers and brokers differ on the likely magnitude of rate increases that will be negotiated for 1 Jan 2024 renewals, most indicated that, barring a major catastrophe loss, overall price increases will moderate, with some accounts seeing flat or lower rates. A lack of significant new capital entering the market will likely lead to stable pricing, experts said. Executives from across the reinsurance sector discussed renewals and other issues affecting the industry last week at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo. The annual meeting at the tiny principality by the Mediterranean Sea is viewed as the beginning of the reinsurance renewal season and attracts attendees from around the world. Senior management from the four largest European reinsurers – Munich Re, Swiss Re, Hannover Re Scor – all gave presentations during the meeting of their view on the market, indicating that they will seek further increases on top of the 30% to 50% hikes they charged last year for catastrophe risk. With average annual catastrophe losses over the past five years exceeding $100bn, compared with about $50bn over the previous five years, reinsurance prices need to increase more for reinsurers to remain profitable, they said. In interviews during the meeting, other reinsurers and brokers said pricing will vary by cedent rather than reinsurers imposing market-wide rate hikes. Rate hikes during the last renewal helped increase the profitability of many reinsurers that had seen several years of negative returns on equity, said David Priebe, chairman of Guy Carpenter. Pricing at coming year-end renewals will likely be tied to the performance of individual cedents and the growth of their exposures, he said. “Pricing, in all likelihood, in the aggregate will be risk-adjusted flat, maybe even down in some areas,” he said. Reinsurers will have to recognise positive actions that cedents have taken in managing their portfolios, such as adjusting property values and better managing aggregated exposures, Priebe said. Reinsurers have had a profitable year so far, after significant changes in programme structures and rates last year, said James Vickers, chairman of international, reinsurance, at Gallagher Re. “People want to lean into what they see as attractive market conditions,” he said. Primary insurers have taken significant retentions over the past year because reinsurers increased rates so much for lower coverage layers, said Jarad Madea, CEO of Howden Tiger Capital Markets & Advisory, a unit of Howden. While insurance-linked securities investors have put more funds into the market, taking advantage of higher reinsurance rates and higher interest rates on their collateral, the alternative capital is directed at higher layers of coverage, he said. In addition, ILS capital can quickly leave the market if rates decrease. “I think there’s going to be a fair amount of discipline among reinsurers, with maybe a little more segmentation across where they’re playing in the risk tower and which cedents they are playing with,” he said. Reinsurers say they still need rate increases. “Without new entrants and without existing carriers growing through material capital raises, the outlook for 2024 should be continued upward pressure on reinsurance pricing,” said Joel Willens, head of international property reinsurance at Ariel Re. The effective increases could come in several forms, such as risk-adjusted rate increases, higher retentions or different mechanisms for calculating reinstatement premiums, he said. Barring a major catastrophe in the next few months, increases won’t be as large as last year, Willens said. “But I don’t think there’s going to be a retreat from the pricing that we are seeing now,” he added. While reinsurers achieved significant price increases last year, 2023 has seen a continued rise in losses from secondary perils, such as severe convective storms, said Sharry Tibbitt, global head of property and deputy chief underwriting officer of the reinsurance division at Everest Re. “Yes, 1 Jan 2023 was strong, but it needs to continue because the losses are continuing,” she said. “It’s going to depend on the programme, depend on the region, depend on the layer to determine who needs how much.” Cedents should not view last year’s increases as “one and done” but rises will be less severe this year, said Scott Egan, CEO of SiriusPoint. “There’s a general upward trend in rate, but I don’t think it’s anything that wouldn’t be reasonably normal in the economic conditions we’re seeing,” he said. This article first appeared on our sister website Business Insurance. For further news from Business Insurance, please click here.

Property reinsurance shock may be over but rates unlikely to fall

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