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Following the annual AIFA conference held in Florida this week, equity analysts noted mixed views on the mid-year renewal outlook for property catastrophe reinsurance rates. Pricing in upper-layers of reinsurance towers is expected to see the greatest competition, but there are no signs of overly aggressive behaviour at this stage.
Analysts noted that supply and demand balanced out at the January renewals, resulting in flat to slightly down outcomes for many property catastrophe signings.
But, there are a number of factors to consider for the April 1 and mid-year June and July 1 renewals, with market participants having mixed opinions on how impactful the recent California wildfire losses will be on reinsurance capital’s demand for rate.
Across a range of equity analyst reports, still wildfire loss estimates are floating between $30 billion and $50 billion.
But some market participants at the AIFA conference believe that the industry-loss is moving more towards the upper-end of that range.
In fact, one analyst report stated a belief that the industry-loss could end up close to the $50 billion mark, with a chance that some reinsurers may need to raise their own ultimate loss estimates as a result.
Any creep higher in the Los Angeles wildfire losses could drive greater discipline at upcoming renewals, at least for US nationwide and multi-peril catastrophe reinsurance contracts it seems.
All important terms and conditions are deemed largely unchanged after the January renewal season and reinsurance market participants expressed a desire to see that stick through the renewals later in 2025.
But, reinsurance capital is building, not least in the insurance-linked securities (ILS) market where catastrophe bonds in particular have seen high levels of activity and investor interest.
This led analysts at J.P. Morgan to say, “This suggests an uptick in competition over time, although there are no signs of overly aggressive behavior currently.”
Some of the analysts see an almost repeat of January at the mid-year renewals, even after the wildfires, with flat to slightly down pricing, but still sustained terms. Although any further catastrophe or major loss activity through the months running up to June and July could adjust that view.
Goldman Sachs analyst team noted the variation in viewpoints over how pricing will develop in reinsurance this year.
“The prevailing view on this debate was that prices will remain flat to slightly down at 6/1 with reinsurers holding retentions steady. Others viewed the recent CAT events as more influential on near-term prices with the view that the level of losses and a near miss of Tampa in Q4 will encourage greater discipline,” the Goldman Sachs analyst team said.
But they also noted, “Agreement remains that reinsurance companies will continue to hold the line on retentions, and greater competition on pricing is expected in the higher layers of reinsurance towers.”
Pricing pressure for top and higher layers of property catastrophe reinsurance towers is almost assured, given how the catastrophe bond market has been executing on price in recent weeks.
The price of cat bond market catastrophe reinsurance has fallen year-on-year and by a more significant amount than was seen broadly at the January renewals. There is some variation, depending on cedent and specific perils, but the general trend is downwards as can be seen in our charts detailing the average risk spreads of cat bond issuance and the average multiple-at-market of cat bonds over time.
Catastrophe bonds are providing robust competition for those higher-layers and cedents have been responding well by sponsoring larger and more expansive deals in 2025, which suggests reinsurers will likely compete to secure the shares of higher layers that they desire to underwrite and retain.
However, some reinsurers may also look to the price execution in the cat bond market and see a distinct opportunity to share some of those higher layer risks and make use of any price differential that emerges between traditional and capital markets coverage, as there has been some bifurcation between the two so far this year.
Interestingly, analysts at Jefferies, after the AFIA conference, said that one of their takeaways is that “property reinsurance pricing is modestly improving following CA fires and demand is increasing.”
While J.P. Morgan’s analyst team also said that commentary about reinsurance at the event was particularly “upbeat” saying that “High losses from LA fires should help support demand and reinforce pricing discipline, at least in the near term.”
The KBW analyst team also reported on the AIFA event and said, “Reinsurance executives remain confident about expected property catastrophe reinsurance returns, as attachment points hold steady and small rate decreases only modestly reverse prior years’ more dramatic rate increases.”
Capital is seen as sufficient to support reinsurance demand, even after the wildfire losses, while KBW reported that one industry executive said “slightly tighter terms and conditions” are possible, especially on how catastrophe events can be treated as single or multiple losses, a direct response to the wildfires it seems.
TD Cowen analysts also highlighted an industry expectation that terms may tighten after the wildfires, saying, “The brunt of these California wildfires will likely be borne by reinsurers, as the majority of the losses fell on homeowners’ carriers, who are heavy users of reinsurance.
“This will likely stabilize reinsurance pricing, according to the panel. The expectation for April 1 reinsurance renewals is that demand will remain strong, but terms and conditions will likely tighten compared to those at Jan. 1.”
Analysts from Autonomous also attended the AIFA conference in Florida this week and said they came away believing that successful insurance and reinsurance underwriters will remain disciplined through 2025.
Reinsurers gave the Autonomous team the impression that there could be some stabilisation to reinsurance pricing trends at the mid-year renewals, while strategic appetites for property cat business would remain in focus.
The Autonomous team said, “From brokers to third-party capital investors, nearly everyone we met with noted that demand for property cat is still not fully met, especially as carriers begin to look to re-expand their reinsurance coverage. These dynamics along with meaningful primary retention of losses from Hurricanes Helene and Milton seem to be stabilizing property cat pricing expectations heading into the mid-year renewals.”
Pricing could be close to flat at both June and July reinsurance renewals that analyst team heard, with reinsurers still willing to grow their property catastrophe books while rates remain attractive.
Appetite for aggregate covers remains muted it seems, as well as for lower-layers, which should see those structures and levels of risk staying firmest, it appears.
Finally, analysts from Evercore ISI concurred with most of the reports, saying that they came away feeling that the reinsurer tone seemed more positive as they looked ahead to the mid-year renewals.
But, rightly, Evercore ISI’s analysts said on the reinsurers, “we think this is to be somewhat expected given their position and timing ahead of renewals.”
Reinsurers are clearly hoping for roughly flat to slightly down pricing at the June and July reinsurance renewals in 2025, pushing for an outcome no worse than that seen in January.
The wildfire losses and also the ramifications of hurricane season losses last year are seen as factors that can help to hold up rates. While the severe weather season in the United States through the spring could be another influence on the renewals.
But, while terms are expected to be in focus again and likely to be a key negotiating area, there is certainly an expectation that the renewal outcome will differ depending on where in the tower capital is being deployed to.
Lower-layers and aggregates are once again likely to have the strongest chances of firming.
But higher-layers are going to see the most abundant competition, with the catastrophe bond market likely a key driver of that.
Importantly, capital is not in shortage at all and likely to only keep building, unless there is some kind of impactful catastrophe, man-made, or economic loss event that affects the industry.
In fact, capital may prove to be abundant as we move through the next few months, so absent any further impacts to the industry and if the wildfire losses don’t creep higher, pressure on renewal pricing and terms may prove to be more forceful than the industry is hoping for.
It’s still very early, of course. But no doubt reinsurance underwriters will be looking to the catastrophe bond market as one source for price signals, as the important mid-year renewals approach.
Read all of our reinsurance renewals news and analysis.
Mixed views on property cat rates, terms still in focus, top-layers to be competitive: AIFA was published by: www.Artemis.bm
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