Property catastrophe rates rise by up to 30%, says Guy Carpenter

Property catastrophe reinsurance rate increases ranged from “near-flat” to 30% in the January 1 2024 renewals, according to broker Guy Carpenter. 

Dedicated capacity across the reinsurance sector rose by about 10% by the end of the year, the broker said in a December 28 report. 

“Global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single-digits up for non-loss impacted and 10%-30% up for loss-impacted programmes, with a wide range of outcomes around these average,” the report said. 

“Generally, pricing pressure was greatest at the lower ends of programs, with any risk-adjusted decreases near the upper portion of placements, reflecting the adequacy of minimum rates-on-line and sufficient capacity.” 

Guy Carpenter said “a responsive reinsurance market” emerged at the January 1 renewals,  reflecting increased capacity and a “commercial approach to the trading partnerships, albeit with continued underwriting rigor”.

It added: “Reinsurance capacity increased through year end, driven by rebounding capital in the sector and healthy reinsurer returns, estimated to be near 20% for 2023. 

“Guy Carpenter, in partnership with AM Best, estimates total dedicated reinsurance capital increased by 10% compared with year-end 2022. Differing from past years following a major market correction, capital growth was driven by existing reinsurers with no start-up class of 2023.”

Dean Klisura, president and chief executive officer of Guy Carpenter, said: “The January 1 market reflected more balanced trading conditions providing cedents improved opportunities to achieve their objectives while maintaining key reinsurer relationships.

“Technical discussions were essential to reinsurers’ increasing appetite and capacity allocations.”

The broker said capacity generally ranged from “adequate to ample” while there was more contract-level consistency on both wording and structural variations, a change from the January 1, 2023 renewals,  

“These improvements led to a smoother January 1 renewal period compared with year-end 2022” the broker said. “However, there were still geographies and client segments that faced challenges reaching market- clearing pricing and structure. 

“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.”

Other key developments included: “A more consistent trading rhythm returned to the property market, with capacity deployment outside of frequency-exposed layers and more heavily loss-impacted segments showing meaningful bounce-back, including on new business where reinsurer activity increased measurably. 

“Markets remain sensitive to pricing, attachment point and overall structure adequacy, but with terms and conditions that were borne out of the demonstrable corrections made throughout 2023. 

“Global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single-digits up for non-loss impacted and 10%-30% up for loss-impacted programmes, with a wide range of outcomes around these averages. 

“Generally, pricing pressure was greatest at the lower ends of programs, with any risk-adjusted decreases near the upper portion of placements, reflecting the adequacy of minimum rates-on-line and sufficient capacity.”

Guy Carpenter said casualty saw 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. 

Projected average returns for reinsurers are nearing 20% for 2023, exceeding reinsurers’ cost of capital. 

Property retrocessional capacity was available and did not constrain reinsurers’ risk appetite, in “sharp contrast” from a year ago. 

“Price improvement  generally occurred in middle to upper layers, retention levels largely held steady despite growth in underlying portfolios, and terms were more consistent within contracts.”

Other significant market developments include:

• Dedicated reinsurance capital, calculated in partnership with AM Best, bounced back in 2023, aided by strong underwriting and investment earnings and the unwinding of the significant mark-to-market investment losses that hit the sector hard in 2022. Guy Carpenter and AM Best’s 2023 estimate of traditional dedicated reinsurance capital is $461 billion, a 12% increase from the initial year-end 2022 level, while alternative capital is estimated to have increased 3.7% to $100 billion net. Overall, dedicated reinsurance capital increased 10% from the initial 2022 year-end estimate.

• The catastrophe bond market had a record year in 2023. Sixty-nine different bonds were brought to the 144A market, totalling more than $15.2 billion in limit placed (of which $415 million includes cyber limited placed), taking the total outstanding notional amount of P&C and cyber catastrophe bonds placed to an all-time high of more than $41.3 billion.

• The total insured industry large losses for 2023, an aggregation of events in excess of $100 million of insured loss, currently stands at $94 billion, including Hurricane Otis, the Turkey earthquake, New Zealand floods and cyclone, and US windstorms. This preliminary estimate is expected to increase as more information becomes available.