The mid-year reinsurance renewals occurred against a continued increase in reinsurer appetite as overall reinsurance capacity grew. This uptick in capacity occurred against a backdrop of strong capital growth and robust reinsurer returns. In 2023, reinsurers in the Guy Carpenter Index added approximately $35 bn to traditional shareholders’ equity capital, according to Guy Carpenter’s Report.
In the weeks prior to June renewals and into July, there was a notable shift in global insurance-linked securities (ILS) supported offerings, creating somewhat tighter conditions than earlier in the spring.
Mid-year renewals reflected a transitioning reinsurance market meeting demand in a dynamic trading environment. Loss-free property programs saw easing of pricing, even as demand increased.
Casualty renewal outcomes varied by sublines as well as reinsurance type. General liability and excess/umbrella placements that are US exposed experienced continued reinsurance pricing pressure for excess of loss programs, while quota share outcomes were tied to the amount of adverse development.
Key Takeaways
- Capital from traditional reinsurers, calculated using the Guy Carpenter Reinsurer Composite Index, increased over $35 bn by year-end 2023 versus 2022 with retained earnings a significant contributor, providing increased capacity available to fulfill increased demand.
- Reinsurer profitability improved going into 2024, incentivizing reinsurers to utilize increased levels of capital in property catastrophe.
- Risk-adjusted pricing trended down by mid-year, particularly on middle and upper layers, giving buyers greater ability to increase purchases.
- Record H1 for catastrophe bonds as investors sought opportunities to participate in improved market conditions.
Property Reinsurance
The majority of property reinsurance placements were completed early to on time (see Global Reinsurance Rate for Property Catastrophe). Easing prices seen throughout the first half of 2024 continued, but ILS-supported transactions have been slightly challenged in recent weeks amid somewhat lower than expected mid-year raises influenced by the elevated North Atlantic hurricane outlook and a desire to realize fund gains.
Reviewing buying activity from January through July 2024, Guy Carpenter estimates approximately $35 bn to $40 bn of additional limit has been purchased world-wide.
This increase generally represents 5% to 10% of catastrophe capacity purchased, including cat bonds, depending on the region.
Risk programs were under scrutiny as reinsurers continued to have concerns about the frequency and severity of large risk losses.
According to Global Reinsurance Property Catastrophe Market Outlook, the general dynamic of more capacity being available for upper layers and constrained appetite for lower layers has been modestly tempered by a slight increase in reinsurers moving lower into programs to secure shares higher in a program.
The material increases in demand for catastrophe reinsurance have easily been met by growing market appetite.
Overall, renewals did not experience major restructuring, and in some instances, improved terms were achieved. Many markets were focused on maintaining adequate pricing but were willing to shift from more constrained subjectivity requirements.
Global property catastrophe reinsurance risk-adjusted rates at mid-year were generally flat to mid- to high-single digits.
In some cases, upper layers were risk-adjusted down 10% or more for non-loss impacted accounts. Pricing movement was heavily dependent on account specific factors including portfolio composition and historical pricing movement.
Pressure remained on attachments, and volatility solutions continued to be sought.
At mid-year, increased demand was met with adequate capacity while individual risk factors still heavily influenced outcomes. Property overall saw some areas of moderating pricing even amidst measurable increase in demand
John Trace, CEO North America
The preliminary mid-year Guy Carpenter US Property Catastrophe Rate on Line (ROL) Index, an alternative measure of price change that incorporates the impact of structural adjustments and current views of risk on actual dollars paid, is near flat year-on-year, standing at +1.2%.
Casualty Reinsurance
Renewal outcomes for casualty business reflected variation across sublines as well as reinsurance type. General liability and excess/umbrella placements that are US exposed experienced continued pressure for increases in excess of loss pricing of +1% to +5% for better performing programs and +2.5% to +10% for those that were loss impacted.
Casualty programs continued to be dependent on highly technical, data-driven insights, including quantifying mitigation of prior year developments
On quota share, downward pressure on ceding commissions featured in the quoting process, however, as underlying casualty rates remained strong and above expectations, post-January 1 renewal outcomes stabilized to flat to -1 point.
For financial lines, ceding commissions decreased by an average of 0.5 to 1.5 points. Key factors include the concentration of public directors and officers (D&O insurance) portfolios in reinsurance structures, the underlying rate environment, and ongoing prior year developments.
Reinsurers transactional risk
Reinsurers scrutinized transactional risk coverages more closely, focusing on pricing and capacity for both stand-alone transactional liability treaties and blended financial lines treaties.
Casualty program placement results relied heavily on technical, data-driven insights. This included quantifying mitigation of prior year developments and addressing portfolio rate changes relative to loss trends.
Reinsurers maintained their focus on the vulnerability of a given portfolio to economic and social inflation.
Demonstrating reduced volatility through controlled and limited capacity deployment was a key differentiator and impacted ultimate terms and conditions.
Turnover in reinsurer panels was also evident across casualty placements, with clients continuing to consider broader reinsurer trading relationships in line signings.
Cyber Reinsurance
The supply of cyber re/insurance capacity remained strong at mid-year renewals, allowing buyers to improve terms across all structures.
Ceding commissions increased 1.5 to 2 points and loss ratio caps pushed upward.
On aggregate excess of loss, there was restructuring movement to either reduced attachment points with improved ROLs or attaching further out with much lower ROLs.
Mid-year renewals saw ongoing interest in alternative structures including event-based covers, continuing a trend observed at January 1.
Retrocession Reinsurance
A more modest amount of retrocessional capacity is placed at mid-year, with the majority of buying activity occurring in January through to April. Through Q1, most buyers looked to secure similar limits to 2023, whereas mid-year purchasing saw demand increasing in Q2 from existing buyers along with historical buyers returning to the retrocessional market.
Drivers of this increase included improved purchasing dynamics relative to 2023, underlying portfolio growth and active North Atlantic wind season forecasts.
The majority of sellers (both rated and ILS) had appetite to grow their portfolios in 2024, with this intention continuing through Q2.
The competitive pressure from increased supply seen in Q1 continued and this resulted in quote ranges narrowing. Early expectations were that mid-year pricing would reduce beyond Q1, however, the uptick in demand in late April through to June caused similar pricing levels to hold.
Catastrophe Bonds
Catastrophe bonds are once again experiencing a record first half of the year, with Q2 being the most active quarter recorded. By June 30, 51 different catastrophe bonds had been brought to the 144A market for approximately $12.2 bn in limit placed, taking the total outstanding notional amount to more than $45.2 bn.
Reinsurance pricing has been dynamic with a significant drop from December levels earlier in the spring, then experiencing increases as ILS capacity tightened.
Pricing is now slightly above December levels but largely in line with other catastrophe products.
For the remainder of 2024, a heavy maturity schedule of 144A catastrophe bonds should drive continued increased issuance activity, although availability of capital will depend upon the results of the 2024 wind season.
Catastrophe Events
The total insured industry losses for the first half of 2024 currently aggregate to over $51 bn, which is ~11% above the 5-year inflation-adjusted average for the first half.
Similar to last year, US severe convective storms are the primary driver of losses for the first half of the year, accounting for over 61% of the total losses.
This preliminary loss estimate is expected to increase as more information becomes available.
Market Drivers Facilitating Additional Limits Purchased
Heading into 2024, significant sector corrections in pricing and attachment points drove a return to profitability in the property reinsurance sector. Simultaneously, reinsurers had access to increased capital to allocate to placements, and had incentive to do so, creating an environment that was more favorable for cedents to evaluate increasing their levels of property catastrophe reinsurance.
With minimal movement in net limits purchased over the past couple of years during more difficult market conditions, there was material interest in additional limit coming into 2024.
Significant inflationary pressure grew underlying valuations and, therefore, cedents’ exposures to loss. Greater market stability, and moderating pricing in a number of segments, provided cedents with better ability to budget for additional levels of coverage.
Outlook for 2025
As the market looks ahead to 2025, Guy Carpenter expects there will be additional factors providing further momentum for increased demand.
Key factors affecting buying decisions over the next 12 months include:
- Continued (albeit lesser) increases in property valuations;
- Growth in overall exposure;
- Model version changes; and
- Focus on continued risk mitigation.
Additional demand was diversified with a significant portion of cedents buying some level of additional limit. In North America, over 60% of property catastrophe contracts included expanded limit with the top 20% purchasing in excess of $100 mn of additional limit.
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AUTHORS: John Trace – Guy Carpenter’s CEO of North America, Dan Becker – CEO of Global Analytics and Advisory Guy Carpenter
