As Property Reinsurance Stabilizes, Primary Rates Rise

Recent activity in the property reinsurance market indicates a return to normalcy after challenging treaty renewals just over a year ago. However, despite this stabilization, primary property insurance rates are expected to increase in the first half of 2024 as insurers closely monitor loss trends and apply rigorous underwriting scrutiny, according to Lockton's latest property market outlook.

During the January 1, 2024, treaty renewals, rates for reinsurance catastrophe coverage flattened with abundant capacity backing them. While the quota share market sees capacity ramping up, capacity remains constrained in the more difficult risk market due to the specialized nature of coverage, Lockton said. Reinsurers, having achieved significant profits over the last year, have stabilized attachment points and pricing for catastrophe coverage, contributing to rate flattening, Lockton reiterated.

The Lockton outlook went on to say that despite improvements in the reinsurance market, property insurance rates continue to rise for most buyers, particularly those with significant catastrophe exposures or recent losses. Secondary perils, such as wildfires and convective storms, are a growing concern for insurers and may lead to increased loss costs passed on to buyers.

Although the Federal Reserve is making progress in curbing inflation, concerns about the cost of construction materials and labor persist. Property valuations, while less of a focus than a year ago, remain an important consideration in renewal negotiations, according to Lockton.

The market outlook report advises insurance buyers are to reassess risk appetite, engage analytics teams, start renewal processes early, and leverage relationships with insurers to navigate the challenging market conditions.