Bermudian reinsurers forecast modest property cat rate decreases at 1.1 renewals: KBW

With both supply and demand for reinsurance coverage on the rise, Bermudian reinsurers expect property catastrophe reinsurance rates to be flat to mid-single-digit risk-adjusted decreases at the January 1st, 2025 renewals, according to analysts at KBW.

Following meetings with 20 companies at the recent 2024 Reinsurance Rendezvous, KBW analysts noted that while reinsurers expect modest risk-adjusted rate decreases, brokers forecast reductions of 5-10%. KBW’s average projection is around a 5% decrease.

The trend of significant primary property rate increases, which are slowing and sometimes reversing, is also increasing reinsurers’ appetite for proportional property business.

Despite these anticipated modest year-over-year decreases, reinsurers consider U.S. property catastrophe reinsurance to be well-priced, with improved insurance-to-value ratios.

In contrast, property reinsurance rates in Europe, which has recently experienced major flooding and hail losses, are likely to rise slightly for 1/1 2025 renewals. However, Europe is seen as a less risky market compared to the Southeastern U.S., which remains the highest-risk area for catastrophes, note analysts.

Over the past 18 months, the reinsurance industry has expanded its capital and capacity due to strong earnings and stable or falling interest rates. New capital inflows are limited, likely due to past poor underwriting results (2017-2022) and concerns about climate change, which has helped to prolong favourable market conditions.

Analysts feel that catastrophe bonds, a growing part of the insurance-linked securities (ILS) space, are an exception, attracting investment due to their strong performance record. Retained earnings are viewed as a more stable source of capacity than new reinsurers. Despite this, most reinsurers are still keen to invest more in property lines compared to 18 months ago.

The growing demand for reinsurance coverage, particularly for higher layers, is absorbing the increased capital in the industry. This rising demand helps maintain market stability, with only minor rate decreases expected. A reinsurance executive noted that every client meeting included requests for more high-layer property catastrophe coverage.

However, and as Reinsurance News also heard from companies at RVS 2024, structures aren’t expected to change with reinsurers poised to maintain discipline and refrain from lowering attachment points, meaning primary insurers will continue to retain frequency losses.

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