Property cat rates likely to be stable in mid-year renewals
Catastrophe reinsurance rates for Bermuda re/insurers are expected to remain stable for the mid-year renewals and some companies will lean into Florida renewals as well, according to research company Jefferies.
Re/insurers expect underwriting to be disciplined in the January 2025 renewals, the analysts said.
Jefferies, whose analysts visited Bermuda recently, said Bermuda re/insurers were likely to benefit from continued strong rates and terms and conditions, identifying Arch Capital, Everest Group, ReniasianceRe, Hiscox, Lancashire and Conduit as beneficiaries of mid-year renewals.
The analysts said both arch and Everest had indicated they planned to grow in Florida this year, while RenRe and Lancashire had indicated little interest in growing in the state.
“While supply has increased due to a build up of retained capital and cat bond issuance, demand has increased as well, with most managements believing that there remains pent-up demand,” Jeffries said.
“Broadly, managements remain constructive on property catastrophe and expect discipline to remain into 1/1/25 renewals regardless of the outcome of storm season,” Jefferies analysts said.
“More risk has been placed privately, limiting the credibility of market indices and some broker commentary,” Jefferies added.
Jefferies said reports of rate declines were “largely true” for “remote layers weighted to ILS” and in the one in 100 year events layers. It said the companies it covers were active in the middle layers which were “stable at accretive rates”.
It added: “The middle layers (one-in-five to one-in-25) have been more stable. Moreover, more risk has been placed privately, limiting the credibility of market indices and some broker commentary.
“Our understanding is that rates are largely flat in these layers, with Arch and Everest even noting modest single digit increases in some Florida accounts. While supply has increased due to a build- up of retained capital and catastrophe bond issuance, demand has increased as well, with most managements believing that there remains pent-up demand.”
It added: “Amongst the European insurers based in Bermuda, our preferred name is Lancashire, with higher exposure to the property-catastrophe reinsurance market, followed by Conduit, where its entry into the hard reinsurance cycle has been well-timed.”
Noting that terms and conditions remain tight, Jefferies said managements felt the segment would remain attractively priced even if rates fell by the middle single digits.
“Broadly, managements remain constructive on Prop CAT and expect discipline to remain into 1/1/25 renewals regardless of the outcome of storm season (though a benign hurricane season would very likely lead to some rate compression). Low attachment layers remain dislocated with demand far outpacing supply.”
Turning to catastrophe bons and insurance-linked securities, Jefferies said cat bond issuance had been strong since the beginning of the year, but warned that ILS supply is capped “as memories from the challenging 2017-2022 period are still fresh and not offset by the benign 2023 hurricane season”.
“In addition, with experts predicting a very active hurricane season with elevated risk of US landfall (due to the positioning of the Bermuda high), CAT bond/ILW issuance has slowed recently, and spreads have widened.
“We believe that this alleviates competitive pressures for traditional reinsurers into mid-year renewals. An active storm season will likely keep ILS capital at bay into 2025 as well.”
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