Property Reinsurance Rates Still at Record Highs, but New Capacity ‘Rebalanced’ Market Demand

Recent commentary from Guy Carpenter, Gallagher Re, and Aon depicts a reinsurance market where prices continue to rise for property catastrophe accounts and underwriting remains rigorous. Still, new capacity has helped meet demand.

U.S. property catastrophe reinsurance rate increases remained the highest in nearly two decades at July 1 renewals, ranging from 20% to 50% (even for loss-free buyers), according to a report from Guy Carpenter. The reinsurance broker’s U.S. Property Catastrophe Rate on Line Index, which tracks price changes by coverage purchased, increased 35% between the January and July renewals.

Gallagher Re saw rates increasing between 10% to 35% for catastrophe (CAT) free accounts and 30% to 50% for catastrophe-impacted buyers. In comparison, Aon reported some moderation in increases at 25% to 35% in the U.S. While rates still rose, capacity has rebounded since January, as reinsurers achieved pricing adequacy and alternative capital returned to the market.

Aon found “ample” capacity for property CAT cover and that some reinsurance buyers waited until mid-year rather than buying on Jan. 1 when capacity was most constrained. The “crunch” expected on June 1, when most Florida property reinsurance renewals occur was avoided.

“While capacity has not returned to 2022 mid-year levels, reinsurers are showing a willingness to support current terms and grow in target areas,” Aon said in its report, adding, “Tort reform and state reinsurance support helped attract capacity to Florida, which showed encouraging signs of a return to stability at mid-year.”

New entrants helped meet some of the strong demand for property reinsurance, but these new players also showed strict discipline on attachment points, pricing, and coverage, Guy Carpenter said. However, the market corrections of earlier this year “rebalanced” the supply and demand equation. Some cedents retained more risk rather than accepting less favorable terms and conditions, which may warrant “strategic portfolio management” in 2024, said Dean Klisura, president and CEO of Guy Carpenter, in a statement.

In Gallagher Re’s “1st View” report, the broker saw some easing in reinsurers’ stances on “harsher terms and conditions requests” and found a “notable increase” in appetite for named natural peril coverage. However, most reinsurers still sought limits on strike, riot and civil commotion (SRCC) aggregation.

All the brokers cited record activity for catastrophe bond issuance, with insurance-linked securities (ILS) investors much more keenly interested during the year’s first half. Guy Carpenter reported 41 catastrophe bonds with a value of $9.2 billion in limits placed by June 30, compared to a $9.3 billion total for 2022.

Catastrophe activity for the rest of 2023 will heavily influence reinsurance pricing in 2024, along with inflationary changes and primary insurers’ appetite for risk. However, this latest reinsurance hard market for property differs from the past, according to Gallagher Re Global CEO Tom Wakefield.

“With the improved terms and conditions available in the reinsurance market, some existing reinsurers are leaning into the hardening market, committing more of their existing capital, as well as any new capital they are raising, to reinsurance,” Wakefield said in the firm’s report. “However, in contrast to other historic hard markets, there are limited signs of completely new reinsurance entities, and the current trend is consolidation into fewer, larger reinsurance entities – which, in the absence of any major losses, points toward pricing stability.”