Reinsurance rates stable in January 1 renewals
Stability is rewarding both clients and reinsurers in the January 1 renewals, according to global insurance group Howden.
Global property catastrophe reinsurance rates rose by an average of three per cent in the renewals, the re/insurance broker said.
“This was down considerably on the +37% recorded in 2023,” Howden said. “Increased appetite from most markets meant supply was able to meet demand to a degree that was lacking last year.
“The rebound in the ILS market was an important factor as competition increased for higher-attaching layers, which in turn encouraged new sponsors to enter the market. Terms and coverage scope remained largely stable, although there was a notable shift towards concurrency.”
Across the re/insurance sector, Howden said: “Relative stability has returned to the (re)insurance market following a period of turbulence that culminated last year.
“Market conditions have improved in the following 12 months, with supply more than sufficient to meet demand.”
It added: “Nuanced conditions across the (re)insurance market reflect new macroeconomic and geopolitical realities and re-set loss expectations. Improved supply dynamics nevertheless suggests sentiment is now shifting as pricing momentum across different areas of the market drives improved performance and increased appetite to deploy capacity.”
Howden said renewals were “relatively stable and orderly” as a result of increased supply and underwriting discipline.
“Risk-adjusted pricing saw flat changes overall. Any significant variation by territory or line of business was informed by loss experience,” Howden said. “Capacity for frequency protection was once again at a premium, but competition further up programmes brought better outcomes. Terms and the scope of coverage were a core focus in 2024, which resulted in improved concurrency overall. Capital inflows supported more favourable market conditions.”
Tim Ronda, CEO, Howden Tiger, said: “The reinsurance market has stabilised after last year’s exceptionally challenging renewal. Reinsurers were relatively unscathed by large losses in 2023, due in part to more favourable terms and conditions, including higher risk retentions and attachment points. Returns are back at equal to, or greater than, reinsurers’ cost of capital.
“Activity in the lead-up to 1 January was timely and orderly, and our clients are in a better position to understand their cost of reinsurance and volatility within their retention. It seems we are in a period where stability is rewarding both clients and reinsurers.”
In retrocession, Howden said a relatively benign year for catastrophes, favourable development for Hurricane Ian and increased capacity led to flat retrocession catastrophe excess of loss caused stable retrocession rnewals.
“Risk-adjusted retrocession catastrophe excess-of-loss rates-on-line were flat at January 1, 2024. Low-attaching occurrence layers and aggregate covers continued to suffer from a lack of supply, whilst strong competition further up programmes resulted in favourable outcomes for cedents, with modest risk-adjusted reductions achieved in certain instances.
“Strong investor appetite saw catastrophe bond pricing fall in the 10% range and remain at attractive levels for both buyers and sellers.
Global direct and facultative reinsurance demand remained robust with flat pricing, driven by higher rates/premium on original business, higher insured valuations on original business and the attendant need for additional limits.
“A cumulative increase of 160% since 2017 keeps pricing levels close to where they were last year and above those recorded in the aftermath of Hurricane Katrina. The underlying market has benefitted from similar pricing tailwinds during this time.”
On catastrophe reinsurance, insured catastrophe losses exceeded $100 billion for the fourth straight year in 2023, indicating an elevated baseline for loss expectations. The lion’s share of insured losses were borne by insurers following reinsurers’ structural retreat from frequency risks through 2023’s renewal cycle.
In Europe, prices increased in the low- to mid-single digits while double dicit increases were seen in some countries including Italy, Turkey and Slovenia.
US renewals were broadly in line with prices from a year earlier, although increased capacity in higher layers, partly driven by the ILS market, brought “more attractive pricing” at these levels.
Risk-adjusted pricing moved within a range of -5% to 5%.
In casualty, Howden said: “Whilst certain reinsurers in the lead up to negotiations talked-up the need to push for wholesale action to address economic and social inflation, and the attendant risk to reserve adequacy, outcomes ultimately reflected more discerning underwriting informed by loss experience, underlying rate change and prior-year development across individual portfolios.”
Howden said capital inflows were expected to continue in 2024, “indicative of increased appetite and the attractive proposition offered by reinsurance today”.
For 2024, Howden said: “2023 ended on a strong note from a macroeconomic perspective as resilient growth, steeper than expected falls in inflation and moderating short-term yields coalesced to drive a robust rally in financial markets.
“Headwinds are nevertheless likely to persist into 2024. Expectations are for modest economic growth across advanced economies.
“Inflation volatility, climate change, the net-zero transition, civil unrest and war, can be more difficult to predict, and the (re)insurance market has a crucial role to play in indemnifying losses when they occur.
“There are also new opportunities to support mitigation and adaptation initiatives by offering risk reduction incentives to policyholders and rewarding positive measures.”
