22 hours ago
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At the January 2025 reinsurance renewals, rating agency AM Best is anticipating that property and catastrophe reinsurance rates will remain relatively stable and that despite recent hurricane losses the market is not likely to harden, but also softening is not likely to be significant either.
While we’re seeing a competitive insurance-linked securities (ILS) market that is tightening spreads of new catastrophe bond issues at this time, AM Best is not calling for a broad spillover of these dynamics into traditional reinsurance it seems.
The cat bond market covers higher-layers, where reinsurance competition is again forecast to be at its most meaningful at the January 1 renewals season, according to our sources.
But, we’re also being told that the spread tightening seen in the cat bond market may not be indicative of a widening trend and is more a reflection of that market being relatively cash-equipped at a time when the market pipeline was only just rebuilding.
The cat bond market is expected to stabilise as investor demand gets more satisfied, as the pipeline increases over the coming weeks and months.
In traditional reinsurance, AM Best believes that a stable 1/1 renewal is the most likely outcome, although with some differentiation, for accounts and also layers in the tower.
AM Best explained that, even after hurricanes Helene and Milton most reinsurers are expected to be profitable for the year.
“The hurricane losses in the third and fourth quarter are unlikely to result in further hardening in the reinsurance market. Although reinsurers will participate in these losses, they are not out of the scope of what reinsurers are pricing for,” the rating agency said.
“Reinsurers expect they will need to occasionally fund losses for traditional CAT events such as hurricanes, if they are able to avoid losses related to secondary perils that are not priced within the coverage. These hurricanes should ease some of the tensions that have built up in recent years among cedents and reinsurers about the inequality of loss assumptions following a rise in more frequent and less severe events,” AM Best continued.
Continuing, “Although pricing is not expected to increase, we do believe that reinsurers will be able to avoid any softening in property reinsurance rates for at least the next year or two. With property reinsurance expected to remain relatively stable in 2025, non-life reinsurers have diverted much of their focus to casualty renewals.”
So, AM Best is anticipating the recent hurricane losses as meaningful enough to support pricing and terms at the reinsurance renewals in 2025.
There is some concern in the equity analyst community over the potential for a softening market in 2025 though.
Some analysts have pointed to recent capital return to shareholder announcements by major property catastrophe reinsurance players as indicative of a market that is very well-capitalised and so could see elevated levels of competition on price.
Some also point to the expectation that demand for property cat reinsurance could rise by around $10 billion at the renewals, which should soak up some excess cash.
Which does all point to a relatively balanced marketplace, which might help to make AM Best’s prediction for relative stability a more likely outcome.
Summing up its views on the reinsurance sector AM Best said that it is “maintained its market segment outlook for the global reinsurance segment at positive, citing robust underwriting returns and the potential for solid full-year 2024 results despite an active Atlantic hurricane season.”
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English (US) ·