Reinsurance rates fall despite late scramble for cover

Many reinsurance buyers finally saw lower rates during June 1 renewals after years of increases, although a last-minute flurry of “shortfall” orders busied brokers and reinsurers during the final week of May.

Most programs renewed with single-digit percentage decreases in rates, although cedents with less attractive programs saw smaller decreases.

A May 30 report from Howden Re, the reinsurance unit of Howden Broking Group Ltd., put the range of decreases “within a typical range of -7.5% to -2.5%,” with the average risk-adjusted property catastrophe reinsurance rate-on-line 5% lower than last year.

Sources agreed most cedents renewed within that range, with a much smaller group seeing decreases in the low single-digit percentage range. There was generally sufficient capacity for most cedents, and much of the market had completed programs before June 1.

Rates in general for the Florida market were flat to down high single-digit percentage points, said Stephen Young, group head of reinsurance and CEO Bermuda for specialty reinsurer IQUW Syndicate 1856 at Lloyd’s of London, part of IQUW U.K. Group Ltd.

Reinsurers appeared willing to deploy a bit more capital into 2024, but recent hurricane forecasts predicting an active Atlantic storm season moderated that intent, said Justin Lorence, Minneapolis-based senior broker and co-head of property for Lockton Re, a unit of Lockton Cos. LLC. Most cedents renewing June 1 have significant southeast wind exposures.

“That, in some respects, stabilized the capacity deployment and pricing environment from falling a little further as renewal season concluded,” he said.

Reinsurance markets were “very predictable and orderly” until about a week ago, said Jill Beggs, Warren, New Jersey-based executive vice president and chief operating officer of the reinsurance division of Everest Group Ltd.

Brokers were busy filling shortfalls in Florida property catastrophe excess of loss programs last week, she said.

Shortfalls occur when a primary insurer has to return to the marketplace to fill, often at a higher price, any gaps left in a reinsurance program, possibly due to a capital provider withdrawing capacity, sources said.

“We’ve gotten cat shortfall opportunities coming to us even over the last 24 hours for which the metrics are much higher than what the client paid last year,” Ms. Beggs said Friday.

Everest has been able to increase its property catastrophe portfolio by double digits, and overall, as of June 1, about $3 billion of new catastrophe limit was bought in the market, she said.

“There are jitters around the elevated forecast that’s come out for this season, and it’s causing a bit of nervousness,” Ms. Beggs said.

Capital providers to insurance-linked securities and collateralized reinsurance, a smaller but integral part of the reinsurance market, may be wary of the robust 2024 Atlantic hurricane forecast, said Adam Schwebach, Tampa, Florida, branch manager of Gallagher Re, a unit of Arthur J. Gallagher & Co.

“What we’re seeing and hearing is that some of those investors are a little cautious given the forecast for the year,” he said.

The broader market, however, was orderly and efficient for much of the renewal process.

“We were seeing much more of a syndicated placement with a much larger portion of programs being done at the firm order term pricing, leaving a much smaller percentage of a placement that potentially needed to pay a little bit more to get done,” Mr. Schwebach said.

The estimated average rate decrease was thought to be around 5% a month ago but now may be somewhat more modest, he said.

“Just given the fact that people are having to pay a little bit more to finish up their programs when the dust settles, we will see pricing down a bit, but maybe not as much as people had hoped a month ago,” he said.

Others also noted the last-minute change in market sentiment.

“As we got closer to June 1, the market dynamics shifted, and capacity tightened as significantly increased hurricane forecasts may have impacted different reinsurer approaches,” Mr. Young of IQUW said.

Chris Draghi, director of property/casualty ratings for A.M. Best Co. Inc. in Oldwick, New Jersey, said this year’s June renewals were “manageable.”

“Expectations are a little bit more transparent” than last year, he said, with primary insurers having a greater understanding of what to expect than they had previously.

Josie Novak, financial analyst for A.M. Best in Oldwick, said that the primary insurers to which she had spoken, while not a comprehensive view of the Florida marketplace, had completed their reinsurance placements more easily than last year.