Ceded reinsurance, an ever smaller proportion of total premium over the last five years: Howden Re

According to Howden Re’s re/insurer earnings overview report for the first half of 2024, the period witnessed moderating rate increases in the primary market, whilst also experiencing a greater proportion of property & casualty (P&C) premiums coming through reinsurers.

But, according to David Flandro, Head of Industry Analysis and Strategic Advisory, Howden Re, “this is not exposure driven,” due to the fact that the cession rate has fallen over the last five years as the compound annual growth rate for reinsurers is the highest.

“This is a signal that most of the premium growth in the market is coming from price, not exposure, which in turn is a signal that we’re reaching the top of the market,” said Flandro.

He continued: “This may be further evident in reinsurance utilization trends. We can see that ceded reinsurance is an ever smaller proportion of total premium over the last five years, and we can also see that net gross loss ratio spreads have increased in the first half. These are all symptoms of higher attachments, lower cessions and higher pricing.”

Howden Re’s report shows that in 2024 ceded reinsurance premium went down to 21% from 22% in the half year.

However, if we were to look back further, ceded reinsurance premium in both H1’20 and H1’21 stood at 29%, and then dropped to 28% in H1’22, which then went on to fall to 22% in H1’23.

Moving towards natural catastrophe losses, Howden Re noted that insured losses remained elevated during the period.

Nat cat insured losses for H1’24 stood at $52.9 billion, compared to $61.2 billion from last year. Howden Re stated that insured cat losses continue to be driven by North America, which contributed over $40 billion towards H1’24’s $52.9 billion figure.

Additionally, Howden Re noted that during the period, there had been discussions on reserve development, notably within US liability and auto lines, as well as reinsurance liability too.

Michelle To, Head of Business Intelligence, Howden Re, said: “These are important areas of development that we are monitoring closely. However, when viewed in aggregate on a calendar year basis, it is clear that reserving has had a favorable effect on earnings since 2016.

“Calendar year reserve development in the first half was most favorable, adding nearly two percentage points of underwriting margin for this global composite on average.”

Summing up the period, To, concluded: “Profitability in the first half has been strong, although composite capital has stayed relatively flat due to dividend payouts. The market remains diligent and conservative in both risk appetite selection and reserving.

“Diversification is key to balancing capital, whilst margin growth is held by higher volume and rate. Lastly, there is growing investor confidence in full-year earnings, although it isn’t lost on anyone that we’re in the middle of hurricane season.”

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.