1 week ago
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Even with a few consecutive years of ~10% pricing declines, the global property catastrophe reinsurance market can still deliver strong returns to reinsurers as long as terms, attachments and conditions all remain stable, analysts at JMP Securities have said, which would also presumably read across to third-party capital investors.
The JMP Securities analyst team said that property reinsurance markets are said to remain orderly, although pricing is said to clearly be under “modest pressure”.
This is their conclusion after visits with London market insurers, reinsurers and brokers, which led them to believe pricing is likely to decline by or close to 10% at the renewals.
“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,” the analysts said.
Capital is building, the analysts heard, while the market is also seeing the desire for growth outstripping the increases seen in demand.
They explained, “With a second year of strong profitability close to in the books and profitability at/near historic highs, it should be no surprise that pricing is likely to come under pressure at the upcoming January 1 reinsurance renewal. Importantly, this is largely just discussion around price with the hard-earned changes to retentions/terms/conditions a few years ago remaining intact.
“It is very difficult to place a single number on the rate of change, but if we had to, we suspect something around a 10% decline will prove to be the consensus result.”
JMP Securities’ analyst team say it is not surprising some large insurers will achieve rate decreases for their property reinsurance renewals after another year where elevated attachment points mean “have not handed their reinsurers recent losses” and so “might achieve price declines of this level or slightly greater.”
Price declines are expected to vary, with greater declines seen in upper-layers of reinsurance towers, smaller declines in lower, riskier layers.
But there is some differentiation being seen and while Europe has seen some weather and cat events passing losses to reinsurers, here there appears to be little changes to retentions and terms. But conversely Canada is seeing revised retentions and terms, as well as higher pricing, the analysts said.
JMP Securities analysts went on to say, “At a high level, we do not find the overall rate declines surprising given the strong returns of reinsurers in recent years despite elevated levels of catastrophe activity (Swiss Re recently estimated $135+ bln of insured catastrophe losses in 2024). We note a mid-teens return on the $600+ bln of industry
capital would suggest ~$100 bln of additional capital, absent any outside capital raises.
“Even if we were to see a few years of ~10% rate declines, we believe the property cat reinsurance markets will continue to provide strong returns, so long as retentions/terms/conditions remain stable.”
It’s more anecdotal evidence that the market continues to strive to hold firm on attachments and T&C’s, even in the face of pressure on pricing from the weight of capital in the reinsurance industry.
Reinsurers and third-party capital providers are likely to accept slightly lower pricing as long as these key contract features hold, with returns having been so strong in recent years and spreads in the insurance-linked securities (ILS) market still well-above historical lows.
English (US) ·