TD Cowen analysts predict property catastrophe reinsurance rates at January 1 will be flat or decline by up to 10%. This outlook follows discussions with senior insurance executives in Bermuda.
Despite the potential rate drop, terms and conditions are expected to remain stable, especially for private companies. TD Cowen noted that private firms prefer accepting rate cuts rather than relaxing the structural changes achieved in recent years.
Executives from firms like Acrisure, Aeolus, Arch Capital (ACGL), Ariel Re, Ascot, Axis Capital (AXS), BMS Re, Everest Global (EG), Fidelis (FIHL), Fortitude Re, Hiscox (HSX), Integral ILS, Howden Re, MultiStrat, and Vantage Risk participated in the discussions.
While most property-cat rates may decline, pricing for loss-affected cedents could rise by over 30%. Analysts also anticipate pricing increases for lower layers of the reinsurance tower.
The retrocession market faces similar downward pricing pressure, with rates possibly dropping by up to 10%. Analysts attribute this to excess capital and an oversupply of reinsurance capacity. For context, each $1 of retro premium supports around $6 of property catastrophe premium.
Large retrocession participants like Aeolus and D.E. Shaw manage $2-3 bn each, while smaller players such as Mereo and Perren Capital Management recently raised new capital.
The report highlights that retained earnings, catastrophe bonds, and insurance-linked securities have driven capital growth in the property catastrophe reinsurance market.
Looking ahead to June 1, further rate reductions are possible. However, the extent of the decline will depend on January 1 pricing trends.
