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The softening of the property catastrophe reinsurance market seen at the key January 2025 renewals has been “entirely rational”, according to broker Gallagher Re, despite the fact the decline in risk-adjusted pricing was greater than many reinsurers had planned for.
Catastrophe loss-free property reinsurance treaties declined almost across the board, except for a few regions that had been most-affected by catastrophe events in the last year, such as certain parts of Europe.
US property catastrophe rates-on-line were renewed between flat and down 10%, according to Gallagher Re, while Australia saw loss-free treaties declining as much as 7.5%, and Korea saw some declines of as much as 25%.
However, the market remained rational and catastrophe loss-hit reinsurance renewals saw increases still, for example in the United States rates-on-line rose by as much as 15% for impacted treaties, Gallagher Re reported this morning.
Commenting on the January 2025 reinsurance renewals, Tom Wakefield, CEO Gallagher Re said, “In areas where growth was most sought, pricing pressure peaked, resulting in reduced risk-adjusted pricing in property catastrophe and specialty, except for loss-impacted programs. The US casualty market remains divided, with some seeing opportunities to expand amid uncertainty, while others adopt a cautious approach. The complexity across business lines and regions has enabled brokers and reinsurers to collaborate closely with buyers, enhancing alignment and risk assessment.”
On the state of the property reinsurance market at 1/1 2025, Gallagher Re explained, “The reduced risk adjusted pricing, while greater than many reinsurers planned for, is entirely rational and as expected in the face of abundant capacity and strong results for 2024.”
Wakefield explained that new rated start-up capital amounted to around US $1 billion for 2025, which he called “modest”.
From the capital markets, insurance-linked securities (ILS) supply “remained strong” with “fund managers raising more capital and additional investors coming into the space,” Wakefield said.
The reinsurance broker went on to highlight how this year’s renewals had resulted in some improved terms and conditions for its clients.
Saying that, “The near universal elimination of differential terms and other improvements such as pre-paid reinstalment provisions and enhanced event clause definitions in specific territories are perhaps more interesting.”
Which is interesting, as the broker also stated that differentiation was still rewarded, but this was more in terms of how clients prepared for renewals, the richness of the data they could provide to reinsurance markets and their strategy.
The broker explained this morning that a “less pronounced, but more significant shift,” was the increase in appetites for lower-layers of property reinsurance towers, as well as for deploying more limit to support aggregate coverage for cedants.
Gallagher Re CEO Wakefield said that, “Low(er) level occurrence and aggregate protections experienced an increase in the number of reinsurers providing support on both a structured and traditional basis for selected buyers.”
Importantly though, Wakefield added that, “However, there was no measurable erosion in core program attachment points.”
The broker’s latest renewals report explains that some reinsurance buyers explored catastrophe aggregate purchases for the first time in a few years, as conditions improved, more capacity was available and market appetite for these solutions increased.
This has been reflected in the catastrophe bond market, where a number of sponsors secured well-priced aggregate coverage in recent weeks.
Speaking to pricing dynamics seen in the catastrophe reinsurance market, Wakefield noted that some of the challenges experienced in recent years went away at the 2025 renewals.
“As an example, new top catastrophe layers that were first bought in high inflation and capacity constrained conditions in 2023 required price-points to attract then scarce capacity,” Wakefield said. “Such pricing anomalies have been smoothed out as inflation expectations moderated and capacity increased resulting in significant percentage reductions year on year, albeit modest in dollars.”
Summing up the renewal market dynamics and his outlook for the year ahead, Gallagher Re CEO Wakefield said, “At this point of the reinsurance market cycle there is an increasing emphasis on the direction that primary markets are taking and what this may mean for the reinsurance market outlook in the next 12 to 24 months. Some trends that have started to emerge in the primary market may give rise to challenges going forward as the search for growth and investor demand for more ‘of this good thing’ puts pressure on supply/demand dynamics. However, there can be no doubt that recent operating results underscore the significant repricing of risk in all major segments over the past several years.
“This was a 1.1 where reinsurance supply generally exceeded demand, buyers sought a measure of relief and sellers provided it. It was also a period in which most key trading relationships remained strong. Negotiations and the resultant outcomes were largely conducted with an increased granularity of data both in terms of quality and amount. This has allowed reinsurers to refine their underwriting approach on a case-by-case basis, to properly differentiate between clients while giving themselves increased confidence that they can still achieve their margin targets. Buyer demand also remained broadly stable which implies that insurers are not looking to retain additional volatility irrespective of whether, from a technical perspective, they could.”
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Cat reinsurance renewals “rational”, lower-layer & aggregate appetite rises: Gallagher Re CEO was published by: www.Artemis.bm
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