Property cat rates up 3%, retrocession flat at January 2024 renewals: Howden

The January 1st 2024 reinsurance renewals saw a more stable market environment thanks to more favourable supply dynamics, but still property catastrophe rates-on-line are estimated to have risen by 3%, according to broking group Howden.

While property cat reinsurance rates rose on average, Howden estimates that retrocession was relatively flat, albeit with a clear divergence in appetites for lower and higher risk layers.

That divergence in appetite was also visible in the catastrophe reinsurance market, where lower-layers experienced the largest rate increases, while higher-layers saw the most competition.

“Relative stability has returned to the (re)insurance market following a period of turbulence,” Howden states, pointing back to last January as an example of how turbulent reinsurance renewals can be.

Going on to state that, “Market conditions have improved in the following 12 months, with supply more than sufficient to meet demand.

“Nuanced conditions across the (re)insurance market reflect new macroeconomic and geopolitical realities and re-set loss expectations. Improved supply dynamics nevertheless suggests sentiment is now shifting as pricing momentum across different areas of the market drives improved performance and increased appetite to deploy capacity.”

As well as more favourable supply-demand dynamics, the January 2024 reinsurance renewals also saw underwriting discipline, Howden said.

With supply able to meet any increased demand, Howden notes that risk-adjusted pricing saw flat changes overall, while loss experience informed any divergence from this.

Noting the more challenging environment for lower-layers again, Howden said, “Capacity for frequency protection was once again at a premium, but competition further up programmes brought better outcomes.”

Terms and the scope of reinsurance and retrocession were in focus at the January 2024 renewals, helping to deliver improved market concurrency, the broker explained, while capital inflows helped soak up demand increases that were seen.

In the property catastrophe reinsurance market, global risk-adjusted rates-on-line rose by an average of 3% at January 1 2024, Howden estimates.

It’s a significant slowing of the rate trajectory seen a year earlier, when 1/1 2023 saw rates-on-line soaring 37%.

Howden commented on the property cat renewals, “Increased appetite from most markets meant supply was able to meet demand to a degree that was lacking last year. The rebound in the ILS market was an important factor as competition increased for higher-attaching layers, which in turn encouraged new sponsors to enter the market. Terms and coverage scope remained largely stable, although there was a notable shift towards concurrency.”

In Europe, loss experience and inflation shaped the catastrophe reinsurance renewals, but rate increases were moderated thanks to capital levels, leading to overall pricing increases in the low- to mid-single-digits range, Howden said.

However, in territories where there had been catastrophe loss activity, such as Italy, Turkey and Slovenia, double-digit risk-adjusted price increases were seen, as reinsurance markets sought to restructure programmes, especially where recoveries had been made in 2023.

“Double-digit risk-adjusted pricing increases were typical in these territories. Capacity was nevertheless sufficient to see deals over the line,” Howden said on these more troubled European regions.

US catastrophe reinsurance renewals at 1/1 2024 “reflected improved supply dynamics,” Howden said.

Reinsurers were “willing to support terms and pricing levels broadly aligned to those established during last year’s renewals,” Howden explained.

The broker noted that reinsurance capacity was still restricted for lower layers, but increased competition further up programmes, which Howden said was “driven in part by the ILS market,” helped in delivering more attractive pricing for the mid-to-top layer risks in catastrophe reinsurance towers.

“Risk-adjusted pricing remained stable as a result, moving within a range of down 5% to up 5%, Regional carriers exposed to severe convective storm losses saw substantial increases,” commented Howden.

Tim Ronda, CEO, Howden Tiger, commented that, “The reinsurance market has stabilised after last year’s exceptionally challenging renewal. Reinsurers were relatively unscathed by large losses in 2023, due in part to more favourable terms and conditions, including higher risk retentions and attachment points. Returns are back at equal to, or greater than, reinsurers’ cost of capital.

“Activity in the lead-up to 1 January was timely and orderly, and our clients are in a better position to understand their cost of reinsurance and volatility within their retention. It seems we are in a period where stability is rewarding both clients and reinsurers.”

In the retrocession market, an absence of major losses in 2023, the favourable development associated with hurricane Ian and some capital inflows, have helped to stabilise this marketplace, Howden said.

“Whereas last year’s dislocated renewal reflected trapped capital and long-standing investor fatigue, improved performance in 2023 put pressure on price and signings,” the broker said.

As a result, risk-adjusted retrocession catastrophe excess-of-loss rates-on-line are estimated to have been flat at January 1 2024 by Howden.

But there remained a dearth of supply for low-attaching occurrence layers and aggregate covers, with these still providing problematic for retro buyers.

Meanwhile, strong competition further up programmes drove favourable outcomes for cedents, with some experiencing modest risk-adjusted reductions.

Looking ahead for the rest of 2024, Howden expects headwinds that will continue to drive home the importance of re/insurance, think geopolitics, inflation volatility, climate change, war and civil unrest.