Gallagher Re's "1st View: Commentary by Lines of Business" Report Insights

Gallagher Re's report, 1st View: Commentary by Lines of Business, provides a detailed analysis of the January 1, 2025, global reinsurance renewals across multiple sectors. The report highlights trends, challenges, and market dynamics, offering insights into key lines such as aviation, cyber, engineering and construction, and specialty markets.

Aviation

The aviation market saw ample capacity at January 1, 2025, fostering competitive dynamics among reinsurers, the report said. Nonproportional capacity was plentiful, allowing buyers to negotiate improved terms. Excess of loss pricing softened slightly due to increased supply, while direct market capacity remained robust, with double-digit rate reductions for airline operators. Buyers benefited from vertical discounting as newer markets sought to secure a share. The Jeju Airline loss on December 29, 2024, is expected to impact underwriting practices, further underscoring challenges in the airline insurance sector. Additionally, Gallagher Re noted that trapped aircraft in Russia and the uncertain claims potential remain key concerns.

Cyber

Cyber reinsurance experienced strong capacity levels and competitive conditions, according to Gallagher Re. Buyers secured improved terms, with ceding commissions increasing and risk-adjusted rates decreasing. Innovations in structure and alignment on cyber-war exclusion language were notable developments. The CrowdStrike information technology (IT) outage highlighted nonmalicious risks in supply chains, leading Gallagher Re to expand the Perils US Cyber Market index with a "nonmalicious" trigger. Additionally, the report emphasized growing adoption of cyber insurance-linked securities (ILS) products.

Engineering and Construction

Capacity in engineering and construction remained static, but market appetite increased, driven by favorable macroeconomic conditions and disciplined underwriting. Losses, such as the Noor Energy solar energy plant incident in 2024, were concentrated among a limited number of insurers and did not harden the market. Gallagher Re noted the re-entry of $450 million to $500 million in capacity since 2018, though this new capacity often targets noncorrelating risks. Buyers with strong portfolios negotiated increased commissions, maintaining stable reinsurance structures.

Life, Accident, and Health

Renewals for life, accident, and health were executed smoothly amid strong results and broadening reinsurer appetite. Risk-adjusted rate reductions ranged from 0 percent to 10 percent for loss-free programs, while advancements in high-cost therapies drove upward pressure on US medical reinsurance rates. The report highlighted the growing demand for covers addressing pandemics, aging populations, and high-cost therapies. Emerging gene therapies, with costs ranging from $240,000 to $4.25 million per treatment, present new challenges and opportunities for alternative risk transfer solutions.

Marine and Energy

The marine and energy sectors reported abundant capacity and stable demand. Improved ceding commissions and bespoke solutions for energy transition risks were key trends. Adjustments to event definitions for strikes, riots, and civil commotion coverage reflected efforts to align coverage with underlying exposures. The report also noted geopolitical concerns shifting focus back to the United States and highlighted a consensus around the $1.5 billion Baltimore Bridge event loss quantum.

Renewables

The renewable energy market continued to expand, with demand for tailored solutions driven by diverse underlying portfolios, according to the Gallagher Re report. Buyers in Asia-Pacific, particularly China, sought stand-alone proportional solutions for offshore wind and solar risks. In the United States, domestic capacity sufficed, limiting cedence to international markets. Reinsurers expressed interest in understanding aggregation concerns in renewable clusters, reflecting the sector's rapid growth.

Medical Excess

Sufficient capacity characterized the US medical excess market, despite emerging risk factors such as high-cost therapies. Renewals reflected increases ranging from flat to 17 percent, influenced by treatments approved by the Food and Drug Administration and anticipated new therapies. Gallagher Re highlighted the market's exploration of alternative structures, such as cell and gene therapy carve-outs, to address evolving risks.

Retrospective

The retrospective market stabilized in the second half of 2024 after prior contractions. Cedent reserve strengthening and narrowing bid/ask spreads contributed to improved conditions. Gallagher Re estimates approximately 30 deals, worth $6 billion to $7 billion in reserve volume, were completed in 2024. The report highlighted strong activity in North America, particularly in workers compensation.

Trade Credit

Trade credit reinsurance renewals were orderly, with capacity plentiful and risk-adjusted rates broadly unchanged, the Gallagher Re report said. Improved terms were observed, particularly in quota share business, as reinsurers responded to a strong primary market performance despite rising insolvencies.

Property Catastrophe

Property catastrophe reinsurance saw pricing moderation and exposure-driven premium growth, according to the Gallagher Re report. Loss-free programs experienced risk-adjusted decreases, while loss-impacted programs faced modest rate increases. In Europe, Middle East, and Africa (EMEA), intense competition led to risk-adjusted reductions for top layers, while Asia-Pacific programs benefited from increased affordability.

Property Per Risk

Renewals for property per risk programs depended heavily on account characteristics, the Gallagher Re report said. Loss-free programs generally renewed flat to 10 percent, while loss-impacted programs saw increases of 10 percent to 20 percent. EMEA entrants helped maintain structures despite challenges from legacy losses.

Political Risk

Political risk reinsurance remained profitable despite claims from Russia/Ukraine events and sovereign defaults, according to the report. Rates softened for loss-free accounts, while excess of loss attachment levels increased for loss-affected accounts.

UK Motor

The UK motor market benefited from the Ogden rate increase, which reduced reinsurers' large loss reserves. Buyers secured significant double-digit rate reductions for excess of loss programs, and quota share treaties were placed with ease, per Gallagher Re.

US Surety

US surety experienced stable supply and demand dynamics, with increased retentions and selective rate adjustments, the report said. Buyers effectively communicating underwriting strategies and portfolio analytics achieved successful placements.

FinPro

Financial lines faced mixed outcomes, with challenges in US public directors and officers (D&O) reinsurance offset by stable capacity in private D&O and monoline errors and omissions (E&O) placements, according to the Gallagher Re report. Transactional liability reinsurers reduced capacity due to accumulation risks, while interest in excess of loss solutions grew.

ILS/Alternative Capital

The insurance-linked securities (ILS) market saw record catastrophe (cat) bond issuance in 2024, driven by strong investor interest and high returns, according to the Gallagher Re report. Cyber cat bonds emerged as a key growth area. The use of parametric triggers doubled, reflecting innovative approaches to risk transfer.