Property catastrophe reinsurance market conditions reach peak

Property catastrophe reinsurance market conditions reach peak, presenting advantageous prospects for reinsurers, according to JMP Securities.

The upcoming June 1 renewal season, particularly focused on Florida, is anticipated to yield positive outcomes.

Assuming a season with minimal to moderate catastrophe losses, reinsurance Return on Equity (ROE) is expected to be robust.

Experts find it unlikely that reinsurers would significantly increase pricing in the next renewal cycle, given the potential economic strain it would place on Florida domestic carriers and the potential challenges it could pose to risk transfer, particularly for lower layers.

Contract terms, such as named storm provisions and the prevalence of 7-month Insurance-Linked Securities (ILS) covers, have already been tightened considerably, making further reductions unlikely.

Property catastrophe reinsurance market conditions reach peak

A substantial decrease in pricing is also not foreseen, as reinsurers have recognised the need for sustainable returns, and a single positive year does not compensate for several years of losses.

Should the industry achieve a 15-20% ROE for the year, it is projected to generate over $50 bn in capital, significantly contributing to replenishing the deficits caused by mark-to-market losses and catastrophes in 2022.

While some January 1 renewals did not witness increased inflation-driven limits, likely due to limited capacity, companies may opt to do so once capacity returns.

As the June 1 renewal approaches, many organisations are expected to seek additional lower-layer private coverage for 2024, as they saved the use of the Reinsurer Aggregate Protection layer for this year.

Despite the positive outlook for reinsurers, industry experts believe that the primary property market may offer even more growth potential. As the impact of higher reinsurance pricing and inflation trickles down, it is anticipated to influence the more regulated primary marketplace.

by Yana Keller