Property-catastrophe reinsurance pricing moderates – report

Howden Re has reported a moderation in pricing within the property-catastrophe reinsurance market, following rate increases in 2022 and 2023.

The average risk-adjusted property-catastrophe reinsurance rates-on-line was 5% lower than usual – typically ranging from -7.5% to -2.5%, it stated.

According to its report, the reinsurance market has been facing a period of adjustment, partly caused by resurging dedicated sector capital that exceeded the levels seen in 2021 along with strong ILS inflows. This led to an increase in capacity at the top of programmes, leading to risk-adjusted rate reductions in the higher layers.

“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,” said Howden Re head of North America Wade Gulbransen.

“Our focus remains on providing innovative thinking alongside dynamic placement strategies to meet these challenges head-on,” he added.

The report noted an increase in activity and competition in the ILS market. As larger carriers in Florida were more active in the issuance of catastrophe bonds, the supply in higher layers increased and led to the significant growth of the assets under management of capital providers.

A shift in focus on property risks by some reinsurers followed the strong performance seen in 2023 as there were several reinsurers that reported some of the best financial results that they had experienced in decades, with regards to combined ratio, return on equity, and economic value added.

This increase in ILS interest reflected a trend in the broader market when it comes to diversified alternative risk transfer mechanisms, which offered reinsurers and cedents more options in managing their exposures.

However, factors such as the 2024 hurricane season can exert short-term rating pressure on the market as the weakening El Niño and the heightened chance of La Niña occurring may entail stronger storms, thereby underscoring the inherent market volatility as well as the need for more strategic resilience.

“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,” said Howden Re head of industry and strategic advisory David Flandro.

Howden Re is the reinsurance and strategic advisory arm of Howden.

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