Reinsurance demand rises as prices ease for some lines

Increased demand for property catastrophe reinsurance limits met abundant reinsurer capital at July 1 renewals, yielding risk-adjusted rate decreases for programs not hit by losses.

Decreases hovered around 10%, but some loss-hit accounts saw increases depending on histories and performance, sources said.

Robust first-half performance from alternative capital and insurance-lined securities bolstered availability.

The casualty reinsurance market was less favorable for buyers, and reinsurers remained concerned about loss trends.

“There’s plenty of supply. The industry capital has grown,” said Scott Kreuzer, Stamford, Connecticut-based senior managing director at Aspen Re America, a division of Aspen Insurance Holdings Ltd. “Pricing and rates continue to moderate through the first six months of the year, based on all the capital availability. The supply certainly outweighs the demand.”

The market was very competitive during June 1 and July 1 renewals, said Brian Flasinski, Philadelphia-based North America CEO for Gallagher Re, the reinsurance brokerage of Arthur J. Gallagher & Co.

“It was definitely a more competitive market compared to recent years, and that was really driven by the excess capacity, even amidst increased demand,” he said.

Overall, risk-adjusted rate reductions for property reinsurance averaged 10% to 15%, Mr. Flasinski said. Casualty markets were less forgiving, despite ample capacity, due to ongoing concerns about prior-year loss development and the U.S. litigation environment.

“There continue to be a lot of challenging conversations around U.S. casualty exposure,” said London-based Mike Van Slooten, reinsurance sector insights, capital advisory, for Aon PLC’s reinsurance solutions division.

Primary insurers that demonstrated progress in remediating casualty portfolios fared better than those that had not, Mr. Flasinski said.

While property markets saw more softening than casualty markets, changes were largely confined to rates rather than terms and conditions such as attachment points.

“Terms are holding,” Mr. Kreuzer said.

“Retentions is probably the area where there is the most discipline, because the loss activity is continuing” from perils including wildfires and severe convective storms, Mr. Van Slooten said. “It’s higher retentions that are really protecting the reinsurers from the worst of those losses.”

Reinsurers’ strong 2024 results allowed them to deploy retained earnings back into the marketplace “despite the weaker Q1 results due to Los Angeles wildfires,” Mr. Flasinski said.

In addition, a significant increase in ILS capacity is creating a more competitive market, he said.

Cedents also are interested in diversifying their reinsurance coverage

“There’s a sense that the broader capital markets are going to become more involved in this space over time, and you better get involved and understand what it takes and build the relationships. That section of the market has kind of come of age, and we’re going to see a sustained period of growth from here,” he said.

Aspen uses third-party capital to bolster property catastrophe and casualty capacity, Mr. Kreuzer said.

Midyear renewals went largely according to design, sources said.

“It came together as we anticipated it would,” said Justin Lorence, Minneapolis-based senior broker and co-head of property for Lockton Re, a unit of Lockton Cos. LLC. The renewal season was “as efficient as I’ve ever seen it in seven, eight years; reinsurers were very responsive,” Mr. Lorence said. Capacity was ample and there was “no shortage of competition.”

“There was evidence of some buyers getting into the market early and securing good terms much earlier in the process than perhaps we’ve seen in the past two years,” Mr. Van Slooten said.

Reinsurers showed a strong appetite for property business generally, and demand for catastrophe limits has increased, he said.

“We are definitely seeing people buying more limit. If they’re able to achieve savings year on year, then quite often, that savings is being redirected into buying additional cover.”

The market dynamics are being driven by reinsurer results, Mr. Van Slooten said.

“Reinsurers have performed strongly for the past two years, and that has built the capital position in the industry,” he said. “That’s why pricing began to come down at the January renewals this year. You had a situation where demand was up, but capacity has increased more.”

Capital increased in the first quarter, albeit modestly, even in the face of an estimated $40 billion in January California wildfire damages, he said.