Stability Returns to Global Reinsurance Market

According to a recent Howden Group report, stability has returned to the global reinsurance market, with supply more than sufficient to meet demand following a period of turbulence that culminated last year.

While conditions across the global reinsurance market reflect new macroeconomic and geopolitical realities with changed loss expectations, improved supply dynamics suggest sentiment is shifting as pricing momentum across different areas of the market drives improved performance and increased appetite to deploy reinsurance capacity, per the report.

Specifically, Howden said more favorable supply dynamics and underwriting discipline resulted in a relatively stable and orderly renewal, with supply more than sufficient to meet increased demand. Furthermore, risk-adjusted pricing saw flat changes overall, and any significant variation by territory or line of business was informed by loss experience. Capacity for frequency protection remained at a premium, but competition in higher layers brought better outcomes. A core focus was the terms and scope of coverage, which resulted in improved concurrency, according to the report.

In terms of pricing, risk-adjusted global property-catastrophe reinsurance rates-on-line rose by an average of 3 percent for January renewals, down considerably from the +37 percent recorded in 2023. Increased appetite from most markets meant supply was able to meet demand to a degree that was lacking a year ago. An important factor was the rebound in the ILS market as competition increased for higher-attaching layers, which in turn encouraged new market entry. Terms and coverage scope remained largely stable, although there was a notable shift towards concurrency, said Howden.

In the United States, January property renewals saw improved supply dynamics, with reinsurers willing to support terms and pricing levels broadly aligned to those established during last year's renewals. While capacity continued to be restricted for lower layers, increased competition further up on programs (driven in part by the ILS market) brought more attractive pricing for mid-to-top layer risks. Risk-adjusted pricing remained stable as a result, moving within a range of +5 percent to -5 percent. Notable was that regional insurers exposed to severe convective storm losses saw substantial increases, according to Howden.

January casualty renewals were characterized by sufficient capacity and market discipline. While certain reinsurers stressed the need to push for wholesale action to address economic and social inflation and the related risk to reserve adequacy, outcomes ultimately reflected more discerning underwriting informed by loss experience, underlying rate change, and prior-year development across individual portfolios.

London market casualty reinsurance excess-of-loss rates remained stable in January, with outlier outcomes that were driven by individual account performance rather than overriding market sentiment. Ceding commissions came under pressure for accounts with US exposures. Many programs saw decreases in the range of one to two percentage points, with steeper reductions for those that have not performed as well or where underlying pricing deteriorated, per the report.

The report's 2024 outlook states that 2023 ended on a strong note from a macroeconomic perspective as resilient growth, steeper-than-expected falls in inflation, and moderating short-term yields coalesced to drive a robust rally in financial markets. However, headwinds are likely to persist into 2024.

Expectations are for modest economic growth across advanced economies. Inflation volatility, climate change, the net-zero transition, and civil unrest and war can be more difficult to predict, and the reinsurance market has a crucial role to play in indemnifying losses when they occur. There are also new opportunities to support mitigation and adaptation initiatives by offering risk reduction incentives to policyholders and rewarding positive measures, said Howden.