In a recent report from BMO Capital Markets, analysts suggest that the property-catastrophe re-insurance market is poised for low-single-digit increases in pricing come January 2024.
The analysis points to a confluence of factors contributing to this trend, including billions of dollars in new demand, sustained population growth along coastal areas, double-digit primary insurance pricing hikes, mid-single-digit property-replacement cost inflation, and models incorporating a heightened frequency of severe convective storms.
The demand surge is attributed to population growth and a reduction in market players, with over a dozen smaller re-insurers having exited the market, resulting in limited startup activity.
This, coupled with a top-heavy market share structure, is contributing to a tight supply/demand equation.
Meanwhile, the casualty re-insurance sector appears to be devoid of social inflationary concerns among reinsurers, with the exception of Swiss Re.
Despite the massive 100%+ pricing increases experienced between 2019 and 2021, particularly within the Fortune 1000 employer space, many insurers believe that casualty business remains competitively priced from an absolute return standpoint. The true impact of these adjustments is expected to become clearer in the years 2025-2028.
Re-insurers are also reportedly content with achieving 1-4 points lower acquisition cost fee levels, known as “ceding commissions,” by negotiating with primary insurance counterparts.
This strategic move is aimed at offsetting the deteriorating loss ratios observed in older vintages.
Furthermore, some insurers express optimism that the recent uptick in lawsuit inflation levels may pave the way for a “hard market” in primary casualty insurance by 2024 or 2025. As a result, insurers are keen on maintaining healthy relationships with cedants and brokers to capitalise on potential market turns.
