Globally, reinsurers are on track to produce a combined ratio near or below 90% and a low-teens ROE for 2024. Not only have reinsurers’ operating and performance ratios improved but so have aggregate balance sheet metrics, providing some context around how quickly and materially the fortunes of the reinsurance industry have changed
London: January 1 renewal activity saw differentiated outcomes for clients. Reinsurers have been able to refine solutions as a result of more effective use of detailed cedant data, a clearer understanding of strategy, evolving views of risk and application of external data sources, said Gallagher Re on Thursday.
`As expected, the most attractive growth segments experienced the most pressure in pricing, terms and conditions, and vice versa. The result was an average reduction in risk adjusted pricing across the board in property catastrophe and specialty (with exceptions for loss impacted programs). Pricing ranges are set out in the report and vary by segment, client, region, and whether loss effected or not. While these ranges represent the general market direction, individual cedant outcomes have continued to reflect specific program characteristics more directly, creating significant deviations,” said the global reinsurance broker in Jan 1 renewals.
Reinsurers have benefitted even more so, with the uplift in primary market pricing augmented by higher reinsurance prices, tighter terms and conditions, and the major reset in catastrophe attachment points. The latter has helped to shield reinsurers from 2024’s elevated natural catastrophe losses, as loss patterns continued to trend to frequency of smaller and mid-sized events, said the report .
Globally, reinsurers are on track to produce a combined ratio near or below 90% and a low-teens ROE for 2024. Not only have reinsurers’ operating and performance ratios improved but so have aggregate balance sheet metrics, providing some context around how quickly and materially the fortunes of the reinsurance industry have changed.
This has fuelled reinsurers’ confidence to take on more risk, to satisfy their own search for growth.
New rated start-up capital, in the region of USD1 billion for 2025, was modest. ILS supply remained strong, with fund managers raising more capital and additional investors coming into the space, having seen attractive returns in 2024 of circa 20%.
“We expect recent results to further stimulate targeted investment in the sector in 2025. This trend is beneficial for sponsors aiming to leverage the catastrophe bond market, as transactions in the fourth quarter have yielded favourable outcomes, with reduced spreads and increased deal sizes, ” stated the report.
While catastrophe bonds represent a standardised and tradable option to invest in the segment, if the bond rates become further decoupled from traditional rates, investment interest in the collateralized reinsurance segment could increase over time.
“In reviewing pricing movements in this increasingly complex landscape, we’d caution that relative changes do not represent a view on profitability. Exposure adjusted rate change is a calculation of year over year price movement and not rate adequacy, multiples of expected loss or other profitability metrics.” said the broker.
Property
Placements continued to stabilize from the more fragmented 2023 market activity and remaining areas of differential terms were largely reversed along with other improvements in applicable territories, such as the return of pre-paid reinstalment provisions and enhanced event clause definitions. Low(er) level occurrence and aggregate protections experienced an increase in the number of reinsurers providing support on both a structured and traditional basis for selected buyers. However, there was no measurable erosion in core program attachment points.
Specialty
The specialty market which embraces aviation, cyber, marine & energy, mortgage, credit/surety, and political violence and terror, was subject to a range of dynamics. Several years of improved underlying trading conditions and an abundance of capacity seeking growth equal to or even greater than that in the property catastrophe sector shifted the negotiating balance in buyers’ favor.
However, there has also been claims activity in the form of the outstanding Baltimore Bridge loss and to a greater extent the pending resolution of aviation leasing coverage litigation. These two losses could materially impact prior year reinsurance program results and overall trading balances, which had a dampening effect on what might have been if pricing, terms, and conditions had been entirely dictated by supply and demand.
The cyber market continues to develop, and one indication of this is the increasing access to alternative forms of capital. This is apparent in the growth of cyber catastrophe bond offerings, having gone from no cyber cat bonds a couple of years ago to six outstanding cyber cat bonds totalling USD785 million from four different sponsors.