Moderated Property-Catastrophe Reinsurance Pricing Shows Market Dynamics Shift

The June 1 renewals for property-catastrophe reinsurance saw a moderation in pricing, according to Howden Re. After witnessing rate hikes in 2022 and 2023, the market now shows an average 5 percent decrease in risk-adjusted property-catastrophe reinsurance rates-on-line, ranging from –7.5 percent to –2.5 percent.

The adjustment in the reinsurance landscape can be attributed to several factors, according to Howden. A resurgence in dedicated sector capital, surpassing 2021 levels, has bolstered the market's capacity. This recovery, sustained by robust inflows into insurance-linked securities (ILS), has resulted in increased capacity at the top of programs and subsequent rate reductions in higher layers.

Buyers and sellers have engaged early in the year, with cedents seeking improved terms and conditions to address previous increases in limits and attachments, alongside narrower contract wording. Reinsurers have taken a proactive stance, finalizing many programs early to enable the deployment of increased retrocession capacity as renewals approached. This strategic approach has allowed some buyers to secure more favorable terms in what remains a cautious market, Howden said.

The ILS market has witnessed a significant surge in activity and competition, with over $3 billion of issuance covering Florida perils alone this year. Larger Florida insurers have been particularly active in issuing catastrophe bonds, contributing to the increased supply in higher layers. Collateralized retrocession capacity has also expanded, with a notable increase in capital providers' assets under management, per Howden.

Some reinsurers are shifting their focus back to property risks, particularly in peak zones such as southwest wind, according to Howden. This change follows robust performances in 2023, with many reinsurers reporting their best financial results in decades. The heightened interest in ILS reflects a broader market trend toward diversified alternative risk transfer mechanisms, offering reinsurers and cedents more options to manage their exposures.

Despite these positive developments, Howden believes several factors could exert short-term rating pressure. Forecasts indicate the potential for a notably active 2024 hurricane season, with weakening El Niño conditions and a 60 percent chance of La Niña developing midseason, typically signaling stronger storms. Additionally, Hurricane Ian loss estimates have risen, and persistent challenges exist in lower layers, especially below the 10-year return period.

David Flandro, head of industry and strategic advisory at Howden Re, said, "The reinsurance market is at a critical juncture. While the recovery of dedicated capital and increased capacity signal a potential softening of rates, the forecasted active hurricane season and other market pressures could counteract these trends. Strategic adaptability and expert guidance are essential in navigating these dynamics."