Reinsurer Capacity Increased in January

January 1 renewals indicate that reinsurance capacity increased in a responsive market, according to Guy Carpenter. Continued underwriting rigor remains with a commercial approach to trading partnerships.

Reinsurance capacity grew throughout Q4 2023. This capital rebound was fueled by sector and healthy reinsurer returns expected to approach 20 percent for 2023. Guy Carpenter, collaborating with A.M. Best, estimated that reinsurance capital increased by 10 percent compared with 2022.

Discussions held prior to the renewal process on subjective topics such as strikes, riots, and civil commotion (SR&CC) led to improvements among placements.

"The January 1 market reflected more balanced trading conditions providing cedents improved opportunities to achieve their objectives while maintaining key reinsurer relationships," said Dean Klisura, president and CEO, Guy Carpenter.

Guy Carpenter observed the following key developments with the January renewal cycle.

• A more consistent trading rhythm returned to the property market, with capacity deployment outside of frequency-exposed layers and more heavily loss-impacted segments showing meaningful bounce-back, including on new business where reinsurer activity increased measurably. Markets remain sensitive to pricing, attachment point, and overall structure adequacy but with terms and conditions that were born out of the demonstrable corrections made throughout 2023. 
• Proactive discussions early in the renewal process on subjectivities such as SR&CC, terror, and cyber led to material concurrency improvements among placements.
• Global property catastrophe reinsurance risk-adjusted rate changes averaged from near-flat to single digits up for non-loss-impacted and 10 percent to 30 percent up for loss-impacted programs, with a wide range of outcomes around these averages. Generally, pricing pressure was greatest at the lower ends of programs, with any risk-adjusted decreases near the upper portion of placements, reflecting the adequacy of minimum rates on line and sufficient capacity.
• Casualty saw pressure on pro rata ceding commissions as well as excess of loss pricing. While negotiations were nuanced and bespoke, capacity was ample once market clearing terms were met. 
• The key to driving renewal capacity was differentiating client portfolios and ensuring actuarial assumptions reflected go-forward portfolio strategies. Additionally, it was important to demonstrate continued discipline in limit deployment, risk selection, and other underwriting measures, as these efforts needed to be accounted for in renewal pricing.
• 2023 is shaping up to be profitable for reinsurers, reflecting the degree of market correction and patterns of loss activity. Return on capital is exceeding reinsurers' cost of capital, as projected average returns are nearing 20 percent.
• Property retrocessional capacity was available and not constraining reinsurers' risk appetite, in sharp contrast to this time last year. Price improvement generally occurred in middle-to-upper layers, retention levels largely held steady despite growth in underlying portfolios, and terms were more consistent within contracts.

Other significant market developments noted by Guy Carpenter include the following.

• Dedicated reinsurance capital, calculated in partnership with A.M. Best, bounced back in 2023, aided by strong underwriting and investment earnings and the unwinding of the significant mark-to-market investment losses that hit the sector hard in 2022. Guy Carpenter and A.M. Best's 2023 estimate of traditional dedicated reinsurance capital is $461 billion, a 12 percent increase from the initial year-end 2022 level, while alternative capital is estimated to have increased 3.7 percent to $100 billion net. Overall, dedicated reinsurance capital increased 10 percent from the initial 2022 year-end estimate.
• The catastrophe bond market had a record year in 2023: 69 different bonds were brought to the 144A market, totaling more than $15.2 billion in limit placed (of which $415 million includes cyber-limited placed), taking the total outstanding notional amount of property-casualty and cyber-catastrophe bonds placed to an all-time high of more than $41.3 billion.
• The total insured industry large losses for 2023, an aggregation of events in excess of $100 million of insured loss, currently stands at $94 billion, including Hurricane Otis, the Turkey earthquake, New Zealand floods and cyclone, and US windstorms. This preliminary estimate is expected to increase.