Reinsurance buyers look for rate relief on property cat exposures

Commercial reinsurance property rates have peaked as new capacity entered the market over the past year following sharp price hikes in 2023, reinsurance executives say.

Cedents will likely push for rate decreases at year-end renewals, though reinsurers say pricing needs to reflect the continued high level of insured losses the market faces.

US liability reinsurers, though, are expected to seek rate hikes, executives said last week during discussions at the Rendez-Vous de Septembre in Monte Carlo, which marks the traditional beginning of the year-end renewal season.

“Clearly, in 2023 the reinsurance market saw the need to realign and recalibrate,” said David Priebe, chairman of Guy Carpenter. “The structural changes needed to be addressed, which they were.”

Moving into 2025, retentions will remain at the levels they increased to last year, and the increased capacity that entered the market will add competition, he said.

“You should see price moderation start to be achieved, anywhere between 5% and 10%, depending on the geography and depending upon the cedent,” he said.

The price hikes of 2023 created a “new equilibrium” in the market, said Marcus Winter, CEO of Munich Re North America property/casualty.

“That equilibrium has not really changed on the property side,” he said.

Demand for catastrophe reinsurance capacity has increased due to inflation, concentration of risk and economic development, mainly in the US but also elsewhere, Winter said.

Increased rates and higher retentions, which led to most of the more than $100bn in 2024 catastrophe losses being retained by primary insurers, produced improved results for reinsurers, said James Vickers, chairman of Gallagher Re International, a unit of Arthur J Gallagher.

At the upcoming reinsurance renewals, buyers may “want to push back”, he said.

“Buyers have looked at their reinsurance programs so far in 2024, they’ve looked at the cost of their reinsurance programs and are not entirely happy. They are wondering if they are getting the best value, and it is a combination of both premium but also attachment point,” Vickers said.

In addition, cedents may seek to recover some lower-level volatility protection, he said.

There is a “healthy” amount of capacity in the commercial property reinsurance market, said Sharry Tibbitt, global head of property and deputy chief underwriting officer of Everest Group reinsurance division.

“I don’t think there’s an overabundance. We’re not seeing new capacity flooding the market, but the reinsurance industry did absorb an additional 10% limit. It does feel like it’s adequate,” she said.

Everest is “realistic” about the property market, Tibbett said.

“We have hit a high-water mark, probably last year,” she said. Given the insurance sector is on pace for another year of more than $100bn in natural catastrophe losses, “we may still need to respond with rate, although I do not anticipate any rate increases like we’ve seen over the last couple of years”.

Retention levels will likely remain “stable,” Tibbett said.

Pricing trends will take more time to determine, sources said.

“Monte Carlo is always a bit too early to decide”, with reinsurers talking up the market and cedents talking the market down, said Mohamed Kotb, managing director of United Insurance Brokers (UIB).

“Because of the positive results of the reinsurers, there is an impression from the clients that this may translate into a bit of a less hard market in due course,” he said.

UIB wants to increase its business in the US, said Shaun Barrington, CEO of the broker. It will do so through existing wholesalers and retailers rather than building out a US footprint, he said.

Liability reinsurance renewals could be more complex. Executives at the world’s largest reinsurers said during presentations at the Rendez-Vous that US liability reinsurance renewals will be affected by increases in court awards and settlements.

“There’s unevenness in what they’re seeing in terms of loss patterns. There are increasing pockets of severity loss, so as we move into 2025, we’re going to have very nuanced conversations by clients with their reinsurance trading partners, evaluating those loss trends,” Priebe of Guy Carpenter said.

Many companies significantly grew their casualty portfolios from 2021 to 2023, “based on the assumption that this really is a good casualty market, and now we have some question marks around that”, Winter of Munich Re said.

“We will know towards the end of 2024, once we have seen the reserve reviews, whether those more optimistic assumptions for 2021 to 2023 hold or not,” he said.

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