Property catastrophe rates remain strongly adequate, so a relatively large loss would be needed to drive a meaningful adjustment, said RenaissanceRe’s CEO Kevin J. O’Donnell, though he noted that it is not the catastrophe itself that shifts rates, but the cumulative effect of rising loss trends and inflation gradually outpacing rate.
In his letter to shareholders in RenRe’s 2025 annual report, O’Donnell explained that rate changes in the industry follow a pattern of “punctuated equilibrium,” where rates remain relatively stable for long periods but occasionally shift sharply, often after large catastrophe events.
“So, given the persistent growth in annual catastrophe losses, the more time that has elapsed since the last correction, the lower price adequacy tends to be. In this case, smaller catastrophe losses are more likely to provoke positive price spikes led by reinsurers. However, if the last rate increase occurred recently, prices are likely still adequate and a large loss is needed to move pricing substantially,” he said.
O’Donnell continued, “We saw this first dynamic in 2022 with Hurricane Ian. Property catastrophe prices had been increasing from 2017 but so had loss trends. Losses from Ian pushed those trends to an unsustainable level, prompting a sharp market correction with rate increases of around 50%.”
In the current market, he said rates remain strongly adequate, and pricing would only adjust substantially if a relatively large loss occurred, though this threshold is smaller than what would have been required in 2025.
“This “punctuated” rate behaviour also explains why a subsequent disaster does not necessarily produce another price increase. Hurricanes Helene and Milton occurred soon after significant rate changes in 2023, so no additional pricing improvement was required because margins remained healthy,” O’Donnell stated.
He also noted that viewing property catastrophe through a casualty pricing lens is instructive, as it provides a real-world check and insight into the likelihood of a positive rate move after an event.
“For example, our casualty actuaries monitor actual versus expected loss trend over many years. When assumptions diverge, reserves must be updated, resulting in an adjustment that may cover multiple years – whether positive or negative. We view casualty business over a ten-year cycle and believe that if we underwrite it effectively, it should be accretive over that period.
“Property catastrophe demands a larger risk premium given its volatility, but the principle still applies. When viewed through this lens, we believe that rate has generally remained ahead of trend across property catastrophe business over the last decade. While there are some subjectivities to this conclusion, it is supported by our property catastrophe results, where our calendar year loss ratio has averaged about 50% over this same time period.”
O’Donnell also said he prefers to move away from the traditional hard/soft market terminology and instead thinks a better description of the market is whether or not it is rate adequate, stating that rate adequacy should drive underwriting behaviour.
He highlighted that in a rate adequate reinsurance market, underwriters should be taking more risk, whereas in a rate deficient market, underwriters should be taking less risk.
“A common misconception is that falling rates define a soft market. Property catastrophe reinsurance in 2025 is a good example. Rates were indeed falling, but they remained strongly adequate. Our actions for the year were driven by the level of rate adequacy, which is why we grew our property catastrophe business even though rates were declining. We wrote more risk even at lower rates, because we expect it will be highly accretive to shareholders,” explained O’Donnell.
He noted that for RenRe, rate adequacy is based on the expected profitability of a deal and, more importantly, the return the deal generates against the capital required to support the risk. If the return is above RenRe’s cost of capital, the deal is considered rate adequate.
He continued, “However, just because a deal is rate adequate does not mean we will write it. Our goal is to construct the best possible portfolio. That means comparing each rate adequate deal to our existing portfolio, as well as to other programs or layers that may have a higher return. These comparisons help determine overall line size, as well as adjustments to line size as rates move.
“We repeat this process across all of our vehicles, recalibrating sensitivity and line size decisions multiple times for each program. This enables us to assemble the best aggregate set of risks for our shareholders and our Capital Partners investors.
“When assessing portfolios, many companies focus their efforts on minimising exposure to the part of the loss curve that might result in expected loss to their balance sheet. This approach, however, can result in missed opportunities to maximise profitability in the income statement. We evaluate both the probability of profitability as well as the probability of loss, and we do this on both an underwriting basis and across our Three Drivers of Profit.”
RenRe’s CEO also spoke during the reinsurer’s recent Q4 and full year 2025 earnings call, saying he expects supply demand dynamics in property cat that played out at the January 1st renewals to persist into the mid-year renewals. He believes that the robustness of rate adequacy will produce a similar outcome to what the firm achieved at 1.1.
