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Property reinsurance shock may be over, but rates unlikely to fall


MONTE CARLO, Monaco – Rates may increase for many property reinsurance buyers at year-end renewals, but early indicators are that the sharp price hikes imposed last year won’t be repeated for most cedents.

While reinsurers and brokers differ on the likely magnitude of rate increases that will be negotiated for Jan. 1, 2024, renewals, most indicated that, barring a major catastrophe loss, price increases overall will moderate, with some accounts seeing flat or lower rates.

A lack of significant new capital entering the market will likely lead to stable pricing, experts said.

Executives from across the reinsurance sector discussed renewals and other issues affecting the industry last week at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, Monaco. The annual meeting at the tiny principality by the Mediterranean Sea is viewed as the beginning of the reinsurance renewal season and attracts attendees from around the world.

Senior management from the four largest European reinsurers – Munich Reinsurance Co., Swiss Reinsurance Co. Ltd., Hannover Re SE and Scor SE – all gave presentations during the meeting of their view on the market indicating that they will seek further increases on top of the 30% to 50% hikes they charged last year for catastrophe risk.

With average annual catastrophe losses over the past five years exceeding $100 billion, compared with about $50 billion over the previous five years, reinsurance prices need to increase more for reinsurers to remain profitable, they said.

In interviews during the meeting, other reinsurers and brokers said pricing will vary by cedent rather than reinsurers imposing marketwide rate hikes.

Rate hikes during the last renewal helped increase the profitability of many reinsurers that had seen several years of negative returns on equity, said David Priebe, New York-based chairman of Guy Carpenter & Co. LLC.

Pricing at coming year-end renewals will likely be tied to the performance of individual cedents and the growth of their exposures, he said.

“Pricing, in all likelihood, in the aggregate will be risk-adjusted flat, maybe even down in some areas,” he said.

Reinsurers will have to recognize positive actions cedents have taken in managing their portfolios, such as adjusting property values and better managing aggregated exposures, Mr. Priebe said.

Reinsurers have had a profitable year so far, after significant changes in program structures and rates last year, said James Vickers, London-based chairman international, reinsurance, at Gallagher Re, a unit of Arthur J. Gallagher & Co.

“People want to lean into what they see as attractive market conditions,” he said.

Primary insurers have taken significant retentions over the past year because reinsurers increased rates so much for lower coverage layers, said Jarad Madea, New York-based CEO of Howden Tiger Capital Markets & Advisory, a unit of Howden Broking Group Ltd.

While insurance-linked securities investors have put more funds into the market, taking advantage of higher reinsurance rates and higher interest rates on their collateral, the alternative capital is directed at higher layers of coverage, he said. In addition, ILS capital can quickly leave the market if rates decrease.

“I think there’s going to be a fair amount of discipline among reinsurers, with maybe a little more segmentation across where they’re playing in the risk tower and which cedents their playing with,” he said.

Reinsurers say they still need rate increases.

“Without new entrants and without existing carriers growing through material capital raises, the outlook for 2024 should be continued upward pressure on reinsurance pricing,” said Joel Willens, Bermuda-based head of international property reinsurance at Ariel Re Ltd.

The effective increases could come in several forms, such as risk-adjusted rate increases, higher retentions or different mechanisms for calculating reinstatement premiums, he said.

Barring a major catastrophe in the next few months, increases won’t be as large as last year, “but I don’t think there’s going to be a retreat from the pricing that we are seeing now,” Mr. Willens said.

While reinsurers achieved significant price increases last year, 2023 has seen a continued rise in the incidence of secondary perils, such as severe convective storms, said Sharry Tibbitt, global head of property and deputy chief underwriting officer, reinsurance division, at Everest Reinsurance Co.

“Yes, Jan. 1, 2023, was strong, but it needs to continue because the losses are continuing,” she said. “It’s going to depend on the program, depend on the region, depend on the layer to determine who needs how much.”

Cedents should not view last year’s increases as “one and done” but increases will be less severe this year, said Scott Egan, Bermuda-based CEO of SiriusPoint Ltd.

“There’s a general upward trend in rate, but I don’t think it’s anything that wouldn’t be reasonably normal in the economic conditions that we’re seeing,” he said.