Moderated risk-adjusted property-catastrophe reinsurance pricing reflects shifting market dynamics at the June 1st reinsurance renewals, broker Howden Re has stated.
According to Howden Re, risk-adjusted property-catastrophe reinsurance rates-on-line (ROL) were on average 5% lower at the June 1 2024 renewals, within a typical range of -7.5% to -2.5%.
According to analysts, the reinsurance market is currently experiencing a period of adjustment, due in part to a resurgence in dedicated sector capital, which now exceeds 2021 levels.
Capacity has increased at the top of programmes thanks to this recovery, which was also supported by insurance-linked securities (ILS) inflows; this has also led to risk-adjusted rate reductions in higher layers.
Buyers and sellers engaged early in the year, with cedents targeting better terms and conditions to address previous increases in limits and attachments, as well as narrower wordings.
By completing programmes early, reinsurers have enabled the deployment of increased retrocession capacity as the renewal drew near, Howden Re points out.
This strategic approach enabled some buyers to achieve more favourable terms in what remains a cautious market.
Wade Gulbransen, Howden Re Head of North America, commented: “It is crucial that our clients secure optimal coverage in this rapidly evolving landscape.
“This means not only finding capacity, but also ensuring it aligns with their risk profiles and financial objectives. Our focus remains on providing innovative thinking alongside dynamic placement strategies to meet these challenges head-on.”
Additionally, there has been a notable increase in insurance-linked securities (ILS) market activity with over $3 billion of issuance covering Florida perils year-to-date.
Larger Florida carriers have been particularly active in issuing catastrophe bonds, contributing to the increased supply in higher layers. Collateralised retrocession capacity has likewise expanded, with capital providers’ assets under management growing significantly.
According to the report, some reinsurers have also begun to re-focus on property risks, aiming to grow in peak zones including southwest wind.
“This shift follows strong performances in 2023, with many reinsurers reporting their best financial results in decades in terms of combined ratio, return on equity, and economic value added. The increased level of ILS interest reflects a broader market trend towards diversified alternative risk transfer mechanisms, offering reinsurers and cedents more options to manage their exposures,” analysts stated.
However, there are several factors that could exert short-term rating pressure, Howden highlighted. An active 2024 hurricane season followed by the development of El Niño conditions and a 60% chance of La Niña could underscore inherent market volatility and the need for strategic resilience.
David Flandro, Head of Industry and Strategic Advisory at Howden Re, said: “The reinsurance market is at a critical juncture. While the recovery of dedicated capital and increased capacity signal a potential softening of rates, the forecasted active hurricane season and other market pressures could counteract these trends. Strategic adaptability and expert guidance are essential in navigating these dynamics.”
Howden Re concluded: “Whilst there are signs of downward pressure on property-catastrophe reinsurance rates due to capital recovery and increased market capacity, reinsurers remain vigilant.
“The anticipated active hurricane season and other market factors could still present significant challenges. Howden Re is committed to closely monitoring these developments and working with clients to navigate the evolving market landscape.”
