As the reinsurance industry draws close to a second year of strong profitability at near/historic highs, pricing is very likely to come under pressure at the upcoming January 1st renewals for property reinsurance rates, according to JMP Securities.
After recently meeting with insurers, reinsurers, and brokers in London, ahead of the key January 1 renewal date, analysts noted that discussions focused around price, with the hard-earned changes to retentions/terms & conditions a few years ago still remaining intact.
Whilst placing a single number on the suspected rate of change is a difficult task, analysts expect it to wind up around a 10% decline year-on-year for property reinsurance at 1.1 2025.
Analysts also explained that it has become clear that any optimism for Hurricanes Helene and Milton arresting a slide in property reinsurance pricing has diminished, and the “down 5%-10%” tagline that was a key talking point at this year’s RVS event in Monte Carlo is now back in control, which analysts suspect will end the renewal closer to the double-digit end of the range.
“Importantly, there appears to remain a firm distaste amongst reinsurers for any giveback on retentions/terms/conditions, which we view as more important than price, and supportive of continued strong ROEs despite modest pricing pressure,” analysts said.
All in all, property markets appear to be orderly, but pricing remains under modest pressure as capital continues to build.
Importantly, analysts stated that it should not be surprising that some large national/ international insurers that carry large retentions and have not handed their reinsurers recent losses may end up achieving price declines of this level or slightly greater.
On the other hand, price declines are expected to vary largely by attachment point (down more up high in programs and less down low) and recent loss experience (closer to flat for those with losses versus larger declines for clean programs).
Focusing attention on Europe, JMP Securities highlighted how the region appears to be seeing little change in retentions/terms & conditions despite a variety of low-level catastrophe events making their way into the reinsurance market.
Switching over to Canada, the country is facing revised retentions/terms and significantly higher pricing following its worst cat year on record.
At a high level, analysts noted that they do not find the overall rate declines surprising given the strong returns of reinsurers in recent years despite elevated levels of catastrophe activity.
Readers will recall that global reinsurer Swiss Re recently estimated that insured losses from nat cat events will exceed $135 billion in 2024.
Additionally, a mid-teens return on the $600+ billion of industry capital would suggest ~$100 billion of additional capital, absent any outside capital raises, analysts added.
However, even if the industry experienced a few years of ~10% rate declines, analysts believe that the property cat reinsurance markets will continue to provide strong returns, so long as retentions/terms & conditions remain stable.
Furthermore, as for specialty lines, JMP Securities revealed that most insurers, reinsurers, and brokers that they met with remained highly constructive overall, which is to be expected due to the range of products on offer, however conditions varied greatly across products and geographies.
“Unsurprisingly, U.S. casualty remains in focus nearly universally across the board. Nobody we met with believed we are in the later innings of prior year development for the industry, which should continue to put upward pressure on primary pricing, making this the one major area of the market that could see pricing accelerate during 2025,” analysts noted.
