The first quarter of 2024 has also shown strong results, with up to a 12% improvement in combined loss ratios, according to
Gallagher Re’s 1 st View report.
These positive outcomes can be attributed to several factors, including benign natural catastrophe activity, adjustments in the reinsurance market, improved conditions in primary markets, and higher reinvestment rates, the global reinsurance broker says. This has created a more favorable market for buyers, as there is sufficient capital to meet increased demand.
Non-life Insurance-Linked Securities (ILS) capital reached a record level USD107 billion at year end 2023 and continued to grow in H1 2024, driven by successful cat bonds and increased investor interest. However, new capital in the form of rated entities is limited.
“This more comfortable market for buyers has been underpinned by an increasing supply of capital to meet increased demand as reinsurers balance sheets have expanded on the back of strong 2023 and Q1 2024 results," commented Gallagher Re CEO Tom Wakefield.
Property lines more competitive
Buyers of property catastrophe insurance have been able to negotiate better terms and conditions on their reinsurance contracts due to the "risk on" approach taken by reinsurers. This has resulted in improved pricing, with risk-adjusted catastrophe placements remaining flat to -10%, with the greatest pricing pressure on more remote layers. Reinsurers have been more willing to adjust premiums rather than the structure of the contracts.
While reinsurers have not been significantly affected by natural catastrophe losses in the first quarter of 2024, there have been estimated economic losses of USD43 billion, and insured losses of USD20 billion, which have been primarily driven by severe convective storms (SCS) and secondary perils such as wildfires, droughts, and floods.
Unexpected flood losses in the UAE, Southern Germany, and Brazil in the second quarter of 2024 have reinforced reinsurers' discipline in retaining risk, with no signs of flexibility. The demand for additional capacity, including an extra USD3 billion to USD5 billion for Florida, has been met.
Predictions of an active 2024 North Atlantic Hurricane season have not significantly affected the pricing and capacity of traditional reinsurers, according to the report. However, some ILS capacity, industry loss warranty (ILW) capacity and retrocession capacity providers have moderated their appetite for US and Caribbean Catastrophe exposure.
Casualty stakeholders aligned
In the casualty insurance sector, reinsurance underwriters are not as confident as their counterparts in the property insurance sector. Concerns over rate adequacy in the US have increased, following adverse development reported by liability insurers in the fourth quarter of 2023 and first quarter 2024.
The lengthening and deteriorating tail of liability claims have exacerbated reinsurers' concerns, as the market is already dealing with economic and non-economic loss inflation. Successful placements have been achieved by cedants who can effectively communicate their underwriting and pricing strategies to reinsurers, along with supporting analysis to navigate the challenges.
While supply and demand dynamics remain stable with adequate capacity, there have been some minor changes in reinsurer panels, indicating a lack of consensus on the underlying issues and how to address them.
Specialty Lines orderly
In the specialty lines sector, reinsurers have maintained underwriting discipline, resulting in no capacity constraints for reasonably priced and structured programs, except for UNL retrocession. Certain individual lines, such as Medical Excess, have experienced substantial rate increases due to class-specific issues.
However, these rate increases are specific to the class and are not correlated with other specialty lines or the wider property and casualty lines of business. The current market has achieved a balance between supply and demand.
"Reinsurers are currently maintaining a balance between revenue growth and profit margins. There is no evidence of any major reinsurer deviating from this approach to drive top-line growth through looser underwriting and pricing,” Wakefield concluded.
The full report can be downloaded here.
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