Reset in pricing is persistent. Property cat in a good state of equilibrium: RenRe CEO

Speaking during the last RenaissanceRe earnings call, CEO Kevin O’Donnell explained that he believes the reset achieved in property catastrophe pricing is proving to be persistent.

RenaissanceRe executives said that they believe around $20 billion of new demand for property catastrophe reinsurance limit has been seen and they expect demand to continue expanding, as cedents look to optimise their businesses to the new reality.

CEO Kevin O’Donnell said that, “Capital is always coming into the industry. We’ve created a lot of capital that we’re happy to deploy into the market. But we also saw $20 billion of new limit purchased.

“So what we’re seeing is a pretty balanced market, between the amount of capital that’s looking to be deployed and the demand that’s coming to the market.

“I think, the reset in pricing that happened in ’23 is persistent in the market and like any financial market, we’re trading around the new level, but we’re not on a negative trend back to the ’22 pricing.

“We always watch supply and demand dynamics and I think, particularly the property cat market, it’s in a good state of equilibrium.”

David Marra, Group Chief Underwriting Officer for RenaissanceRe, provided some more colour on the property catastrophe market during the earnings call, indicating that further demand increases are anticipated.

“We believe that the market for property catastrophe reinsurance remains highly attractive. Terms and conditions have been stable and retention have held,” Marra said.

Adding that, “Looking forward to 2025 we expect demand will continue to grow as cedents adjust their reinsurance budgets to prevailing market conditions and respond to inflation of underlying insured values. While most of this demand will be at the top end of programs, it will also filter down through towers.

“We are in a superior position to underwrite this additional demand for several reasons. First, our flexible platforms with owned and managed balance-sheets. This enables us to deploy capital at the top, middle and low-end of towers, providing a single source of large capacity that clients value while allowing us to optimize our net retained portfolio. Second, our risk expertise and the strength and durability of our partnerships which make us a first call market for clients and brokers.”

Which speaks to the benefits of the Capital Partners business and how that allows RenaissanceRe to operate across cycles in the market, while optimising its own book and those backed by third-party capital providers.

Later in the call, Marra also highlighted that retentions are seen as critical still by the reinsurer.

“The most important thing is that the retentions held. Retentions are the piece that allows us to continue to construct a portfolio and be removed from attritional losses and that’s the most important thing that we’re focused on,” he said.

Asked about whether there has been increasing activity and appetite to provide reinsurance capital to lower layers in the market, CEO O’Donnell elaborated on retentions, saying, “I think, you know, buyers would like to have lower retentions, so there’s always, from a broker’s perspective, an opportunity to sell something there.”

But went on to say that, “I think in the market, if there are lower layer sold, the market will be disciplined.

“So I’m not particularly concerned about an overall shift to the retention levels that were available in 2022.”

O’Donnell then again pointed to the multi-balance-sheet flexibility that RenaissanceRe has.

“You know, if there are buy-downs on programs we’re happy to look for them and we also have different vehicles that might be a better home for it rather than our own balance-sheets.

“But I wouldn’t say we’re seeing that actively at this point. There’s always conversations about where the retention is and I think the brokers are using that, where they potentially have an opportunity for some growth there.”

Group CUO Marra further stated, “I think most of the demand will come as new top layers and continue to expect that to happen. We’re able to play across the spectrum, so we have new capital for the top layers and then we’re able to optimize our net position throughout the tower. That suits us.”

O’Donnell later switched back to demand, explaining that his firm feels property cat limits have been growing at a roughly 10% to 15% rate.

He then said, “Demand has been a bit of a seesaw. I think as rates are coming through in the primary market we’re seeing people executing on their desire to purchase more limit.

“It’s been very constructive for us, with particularly Top Layer and Vermeer. You’ve also seen elevated cat bond issuance as well.”

The executives were also asked about whether aggregate reinsurance covers are making any kind of comeback in the market at this time.

Marra commented that, “There is very little appetite in the market for aggregate covers. There are some that attach at proper catastrophic levels, but aggregate covers that will provide the earnings level protection that will respond to the smaller cats that we’re seeing happen, the severe convective storms and the other things that happened in the quarter, those are not really existent to the market these days.”

O’Donnell added, “I know some of the Midwest regionals are structured as aggregates, but they’re not what would be the traditional aggregate that was exposing reinsurers prior to 2020. These are smallish companies that have an aggregate component to their program, but it’s not the same low aggregates that were in the market from ’22. These are much more of an appropriate level of retentions and tend to be more narrow in geographic footprint.”

Marra also explained, “We believe that the right level of risk now resides with the right part of the capital chain. By and large, insurance companies are working to construct their portfolios to fund these earnings event losses, while reinsurers provide cover for more severe capital intensive events.”

Kevin O’Donnell later said that conditions are expected to persist, “We are confident the current favorable environment will persist into 2025, which will allow us to continue to grow shareholder value at an industry leading pace.”