Property-Catastrophe Reinsurance Market Adjustments in 2024

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The reinsurance market sees moderated pricing in 2024 after significant rate hikes in 2022-2023, driven by capital resurgence and negotiations

In recent years, the property-catastrophe reinsurance market has experienced significant fluctuations. Notably, 2022 and 2023 saw substantial increases in reinsurance rates. This meant that insurers seeking to transfer some of their catastrophic risk to reinsurers had to pay considerably higher premiums. These rate hikes were likely driven by a combination of factors, such as increased frequency and severity of natural disasters, inflation, and possibly a recalibration of risk assessment models.

However, by January 6, 2024, Howden Re, the reinsurance and strategic advisory division of Howden, noted a shift in this trend. The market experienced a moderation in pricing, indicating that the steep rate increases of the previous two years had eased. This change suggests a stabilisation or a slight reduction in the urgency or perceived risk that drove the earlier rate hikes.

Specifically, Howden Re observed that the average risk-adjusted rates-on-line (ROL) for property-catastrophe reinsurance had decreased by 5%. The ROL is a crucial metric in reinsurance, representing the ratio of reinsurance premium to the limit of coverage provided. A decrease in this ratio means that reinsurers are charging lower premiums relative to the amount of coverage they are offering.

This 5% decrease was within a typical range of reductions, which varied between 2.5% and 7.5%. Thus, while the average decrease was 5%, some contracts saw a reduction as high as 7.5% or as low as 2.5%. This variability can be attributed to differences in risk profiles, geographical locations, and the specific terms of each reinsurance contract.

A graph of the risk-adjusted property-catastrophe reinsurance index

A Period of Adjustment

The reinsurance market is undergoing a period of adjustment, largely driven by a resurgence in capital dedicated to the sector, which now surpasses 2021 levels. This recovery, bolstered by strong inflows into insurance-linked securities (ILS), has increased available capacity at the higher levels of reinsurance programs, resulting in risk-adjusted rate reductions for those higher layers.

Early in the year, both buyers and sellers actively engaged in negotiations. Cedents (the insurance companies seeking reinsurance) aimed to secure better terms and conditions to counteract previous increases in coverage limits and attachment points, as well as to address the issue of more restrictive policy wordings. Reinsurers took a proactive approach, completing many reinsurance programs ahead of schedule. This allowed them to deploy additional retrocession capacity (reinsurance for reinsurers) as the renewal period approached. This strategic maneuvering enabled some buyers to secure more favorable terms, despite the market's overall cautious stance.

Wade Gulbransen, Howden Re Head of North America, comments, “It is crucial that our clients secure optimal coverage in this rapidly evolving landscape. This means not only finding capacity but also ensuring it aligns with their risk profiles and financial objectives. Our focus remains on providing innovative thinking alongside dynamic placement strategies to meet these challenges head-on.”

Macroeconomic Factors

Several factors are likely to exert short-term pressure on ratings. Forecasts suggest a significantly active hurricane season in 2024. This expectation is based on the weakening of El Niño conditions and a 60% likelihood of La Niña developing midseason, which generally leads to more intense storms. Additionally, loss estimates for Hurricane Ian have increased, highlighting ongoing challenges in the lower layers of coverage, particularly those with return periods under ten years. These factors emphasise the inherent volatility of the market and the critical need for strategic resilience.

David Flandro, Head of Industry and Strategic Advisory at Howden Re, says, “The reinsurance market is at a critical juncture. While the recovery of dedicated capital and increased capacity signal a potential softening of rates, the forecasted active hurricane season and other market pressures could counteract these trends. Strategic adaptability and expert guidance are essential in navigating these dynamics.”


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