Following a series of meetings with senior insurance industry executives in Bermuda, TD Cowen analysts reported that pricing at January 1st for property catastrophe reinsurance is likely to be flat or decline by as much as 10%.
This prediction comes despite expectations of terms and conditions remaining stable, particularly for private companies.
TD Cowen noted that private companies would rather hold the line and take a rate cut than start loosening terms and conditions after the structural changes achieved in recent years.
Participating in the meetings were senior management members from Acrisure, Aeolus, Arch Capital (ACGL), Ariel Re, Ascot, Axis Capital (AXS), BMS Re, Everest Global (EG), Fidelis (FIHL), Fortitude Re, Hiscox (HSX), Integral ILS, Howden Re, MultiStrat, and Vantage Risk.
From the talks, analysts at TD Cowen also concluded that, for loss-affected cedents, pricing could be up as much as 30+%. Lower layers in the reinsurance tower could also see pricing increases.
According to the report, while property-catastrophe reinsurance pricing is coming down, companies are generally comfortable with premium adequacy, as pricing is down vs. “generational peaks.”
However, aggressive market share pursuits by property cat players could further accelerate price declines.
The retrocession market, which provides reinsurance coverage to reinsurers, is also experiencing downward pricing pressure, with rates potentially falling by up to 10%.
This decline is attributed to excess capital in the retro market and an oversupply in the broader reinsurance market. One dollar of retro premium supports approximately six dollars of property catastrophe premium, explain analysts.
Larger participants in retro include Aeolus and D.E. Shaw (who both manage roughly $2-3 billion), with a drop-off in size thereafter. Smaller participants that recently raised capital include Mereo and Perren Capital Management.
Notably, retained earnings and the growth of catastrophe bonds and other insurance-linked securities have contributed to the increased capital supply in the property catastrophe reinsurance market.
Looking ahead to the June 1 reinsurance renewals, further declines in property-catastrophe reinsurance rates are possible, analysts highlighted, though the magnitude depends on pricing trends for January 1.
