Fitch Ratings expects reinsurance property market hardening to persist into the January 2024 renewals and beyond, although expects a deceleration when compared with 2023 as analysts feel that rate adequacy has generally been reached.
The conditions are driven by the continued supply/demand imbalance as reinsurers hold firm to maintaining underwriting discipline, even in the higher interest rates environment, says Fitch.
Analysts state that property market conditions have effectively returned to the pre-soft market state of providing capital protection for cedants, rather than earnings protection.
Fitch notes that reinsurance demand remains strong as primary insurers grapple with increased risk, including from climate change, and higher total insured values as a result of the inflationary landscape.
Additionally, cedants continue to retain more risk as the capacity for low layers that attach at a higher frequency of less than a one-in-10-year period has been nearly eliminated, and coverage moved almost exclusively to per-event occurrence protection, with limited aggregate cover treaties offered, says the ratings agency.
“Fitch views it as unlikely that there will be any sizeable new reinsurance capacity added at 1 January 2024 as reinsurers have become much more selective. This is particularly the case in property due to elevated catastrophes, especially with increased secondary perils, where modelling is less robust,” say analysts.
As noted by the ratings agency, numerous firms have either partially or completely pulled out of the property cat market, although some others have increased capacity as they look to take advantage of rising rates in the hard market.
“Terms and conditions saw structural changes in 2023 that serve to benefit reinsurers’ risk/reward profile and are likely to last longer than the near-term rate impact. Cedants experienced substantially higher retentions, reduced limits, increased attachment points, limited reinstatements, as well as non-concurrent pricing and policy terms varying by reinsurer and layer,” notes Fitch.
