Property cat reinsurance prices to slow meaningfully (but not decline): Goldman Sachs

Equity analysts at Goldman Sachs are expecting a meaningful slow-down in property catastrophe reinsurance pricing through 2024 and perhaps beyond, but at least for the year ahead, they are not anticipating any meaningful decline.

In fact, with demand forecast to be on the rise, the analysts expect that reinsurance will remain very profitable in 2024, with premiums ceded to reinsurers by primary carriers anticipated to increase.

The analyst team at Goldman Sachs are forecasting reinsurance premiums to grow in the “high-single-digits or better in 2024.”

A key factor in this will be increased reinsurance demand, more than the price driven premium growth we’ve seen the last few years.

“In 2023, primary insurance companies often chose to increase risk retention (buy less reinsurance) in response to the rapidly rising cost of reinsurance,” the analysts explained.

Adding, “As we head into 2024, we believe this dynamic will reverse.”

One driver is that primary companies have now had more time to push through rate increases on their own books, so the reinsurance rate increases seen in recent years can now be more easily absorbed and accounted for.

Primary companies are expected to elect to buy more reinsurance as a result, with another factor being that “reinsurance capacity is more adequately matched with demand.”

The analysts are calling for a perhaps dramatic slow-down in the pace of price increases in global property catastrophe reinsurance markets.

As we reported just the other day, the Guy Carpenter Global Property Catastrophe Rate-On-Line Index slowed from a near 30% increase for 2023, to just 5.4% for the January 2024 renewals.

But the Goldman Sachs analyst team are not expecting anything to turn negative at this time, with a forecast for property cat prices to increase by up to 5% across the full-year 2024.

But that ties in well with a forecast for property catastrophe reinsurance prices to “slow meaningfully”, but not to turn negative at this time.

Growing demand for reinsurance and capital levels proving adequate, but not sufficient to weigh on price, suggests a good year for property catastrophe reinsurance investors, depending on global loss activity of course.

If property cat reinsurance can remain at or near the highs set in 2023, it suggests a more risk commensurate level of pricing across the cycle of global loss activity, which would support better profits for reinsurance and ILS investors and enable reinsurers to meet their cost-of-capital more sustainably.

While that would be costly for insurers, in terms of their renewal pricing being elevated across cycles, the market needs to find an equilibrium where the cost-of-risk assumed is actually being paid over the long-term.

Rather than pushing for softening of price, the industry should perhaps turn back to the focus we saw a few years back, on how to smooth the flow and matching of capital with risk by reducing frictional costs in the chain and enhancing efficiency, thereby making risk capital go further.

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