Mid-year ILS fund raises “somewhat lower than expected” – Guy Carpenter

Reinsurance broker Guy Carpenter has said that the fact expected mid-year insurance-linked securities (ILS) fund raises were “somewhat lower than expected” had a bearing on the just completed renewals.

Commenting on the property reinsurance market, the broker explained that, “The majority of property placements were completed early to on time.

“Easing prices seen throughout the first half of 2024 continued, but ILS-supported transactions have been slightly challenged in recent weeks amid somewhat lower than expected mid-year raises influenced by the elevated North Atlantic hurricane outlook and a desire to realize fund gains.”

The broker also said that, “In the weeks prior to June renewals and into July, there was a notable shift in insurance-linked securities (ILS) supported offerings, creating somewhat tighter conditions than earlier in the spring.”

Despite that, Guy Carpenter said, in its commentary on the mid-year reinsurance renewal season, that the “transitioning reinsurance market” still responded well to cedents’ increased demand for limit.

Loss-free property reinsurance programs generally saw some easing of pricing, even as the demand for protection increased.

“Well-positioned cedents achieved greater concurrency and pricing consideration in this positive but still cautious trading environment,” explained Dean Klisura, President & CEO of Guy Carpenter.

“However, headwinds, including unsettled macroeconomic conditions and the geopolitical environment, are leading to shifting risk appetites. Guy Carpenter provides perspective to our clients to help differentiate them and find the best solutions possible.”

Overall, the broker said that preliminary mid-year data suggests that the Guy Carpenter US Property Catastrophe Rate on Line (ROL) Index, an alternative measure of catastrophe reinsurance price change that incorporates the impact of structural adjustments and current views of risk on actual dollars paid, is near flat year-on-year.

In general, property placements at the mid-year reinsurance renewals were completed early to on time, but risk programs remained under scrutiny with some ongoing concerns about the frequency and severity of large risk losses.

Global property catastrophe reinsurance risk-adjusted rates at mid-year were generally flat to down mid- to high-single digits, Guy Carpenter also said.

The broker also noted some differences depending on where in the risk tower capacity is being deployed, with in some cases, upper layers seeing risk-adjusted decreases of 10% or more for non-loss impacted accounts, in what Guy Carpenter calls “a moderating but still robust pricing environment.”

“The reinsurance industry has responded to measurably increased demand in 2024, which has materialized at a level above many expectations. Reinsurers’ attractive returns and improved capital positions are facilitating increased capacity in several sectors. Guy Carpenter is set to strategically help our clients in this new era of risk,” David Priebe, Chairman, Guy Carpenter, concluded.

It is perhaps telling that, even though Guy Carpenter noted how well-capitalised the reinsurance market remains, it is ILS fund raises that deserved a mention for falling short of the broker’s expectations.

This speaks to the importance of ILS capital in the global reinsurance market, especially for US catastrophe risks and shows that demand is there, if and when ILS fund managers raise more, while also reflecting investors caution in a year when the headlines have been full of high storm numbers and forecasts for an active hurricane season.