Reinsurers’ PMLs hold steady for US and European wind risks at Jan 1: Moody’s

Reinsurers’ Probable Maximum Loss (PMLs) exposures as a percentage of equity capital remained broadly stable year-over-year at January 1 for U.S. wind, U.S. earthquake, and European wind, according to a new report from Moody’s.

In contrast, exposures declined for Japanese wind and earthquake, driven by growth in sector-wide shareholders’ equity.

For those unaware, PMLs represent the largest loss a reinsurer is likely to incur from a single catastrophic event, based on modelled scenarios and assumptions.

As per Moody’s report, on a nominal basis, aggregate PMLs increased year-over-year at January 1 2025 and show meaningful growth since the 1 January 2018 renewals that marked the end of the soft market for property catastrophe reinsurance pricing.

“Despite a moderate pullback in pricing this year, reinsurers are generally still eager to deploy capital in property catastrophe reinsurance (particularly US wind) given the favourable expected returns,” Moody’s said.

Elsewhere, the rating agency’s report touched on how PML disclosures show the differing risk appetites among companies.

“Although the weighted average sector US wind PMLs were similar to last year’s, viewing PML trends on an individual company basis highlights the different catastrophe risk appetites and capital allocation priorities among reinsurers,” Moody’s said.

Moody’s report also discussed property cat pricing during the January 2025 renewals, stating it was largely flat for lower attaching layers, but saw some downward pressure for more risk-remote layers.

the rating agency continued, “Although the heavy losses sustained by reinsurers from the California wildfires earlier this year could provide some support to pricing, the upcoming midyear renewals in the United States are likely to see continued price decreases at higher return periods as more capacity enters the market.

“That said, demand for reinsurance coverage remains robust and reinsurance terms and conditions generally remain firm, with primary insurers retaining more risk at lower return periods.”

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