2 weeks ago
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After a trip to Bermuda to speak with reinsurance executives on the island, analysts from BMO Capital Markets said the expectation seems to be that 2025 renewals will see property catastrophe reinsurance rates fall between 5% and 10%, while retrocession renewal pricing may fall as much as 10% to 20%.
It’s important to note the commentary comes from traditional reinsurance firms operating in Bermuda, although most have third-party capital strategies or access insurance-linked securities (ILS) markets regularly themselves.
Recent hurricane activity is not seen as detrimental to reinsurance sector capital and in fact, with retained earnings, it’s anticipated that sector capital will increase even without material amounts of new capital entering the space this year.
It’s also worth pointing out that, even with an expectation of some mild to moderate rate softening at the January 1/1 2025 renewals and possibly at renewals through the rest of next year, some in the industry are still saying that 2025 could “profile as the third most attractive year for reinsurers ever, though profit margin are narrowing,” BMO’s analyst team explained.
The renewal is still unfolding and some reports suggest perhaps running around a week or so behind last year’s schedule, with “few firm orders in the marketplace,” the analysts heard on their Bermuda trip.
But, “The industry expects the market to continue thawing over the next 1-2 weeks,” they continued.
While reports of new capital entering the reinsurance market aren’t abundant this year, the BMO analysts said it is important to remember that, “Following 2024, the industry created $80-90B of new capital this year where retained earnings accounts for ~$70B of that.”
On the positive side, “terms and conditions are holding,” but with more availability of aggregates this year, which we explained in our recent article here.
Brokers are looking to get reinsurance markets to be a little more accommodating for their clients at the renewals, with the analysts saying they heard of, “Commentary that reinsurance brokers are leveraging the increased capacity at higher layers to push increased supply down to the lower layers that are closer to loss.”
On pricing for property catastrophe reinsurance renewal rates, “The consensus narrative seemed to be property CAT would wind up down 5-10% y/y, though the market is still unfolding.”
While on retrocession, “Retro (reinsurance protection re-insurers buy) is expected to be down 10-20%, with that market unaffected by Milton/Helene.”
Finally, on the demand side, BMO Capital Market’s analysts explained that with new catastrophe model versions being adopted by the market, these should represent a drive of demand.
” Not all insurers have adopted the new models yet, and the increased reflection of risk should drive increased demand for greater limit from reinsurance buyers next year,” the analysts said, further saying that, “Noted areas of change include wildfire vulnerability in non-California states, some view of increased risk in the Northeast.”
The forecast for property cat rates is aligned with other analysts and predictions, while the forecast for retrocession renewals is indicative of a far more buyer-friendly marketplace for 2025.
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