Property catastrophe reinsurance capacity is expected to remain relatively stable at the January 2024 renewals, according to a survey by broker Gallagher Re, which also suggests that reinsurers’ appetite for underwriting comprehensive and lower layer covers remains limited.
It’s another sign that the January renewals won’t get all reinsurance buyers what they really want, as demand for these higher frequency and higher risk coverages likely remains unmet, forcing cedants to find alternative means to further get rid of this volatility.
Josh Knapp, executive vice president, brokerage – national at Gallagher Re, recently explained that “ahead of the 1.1.2024 reinsurance renewals, overall reinsurer appetite for regional catastrophe coverage in the United States remains healthy, but insurers are proving less willing to provide blanket coverage for regional real estate Cat risk, preferring instead to deploy capital through stop-loss (XOL) programs.
24 of the most active reinsurers in the US market were surveyed and the broker found that the overall amount of property catastrophe reinsurance capacity that will be deployed in US 1/1 programs is expected to remain relatively stable.
Some 58% of reinsurers plan to write about the same amount of property exposure as last year, but 38% expect modest growth, Gallagher Re said.
A year ago, Gallagher Re conducted a similar survey and found that 37% of reinsurance companies were unwilling to underwrite blanket covers.
However, this year that percentage jumped to 63%, reflecting a real aversion to overall U.S. catastrophe reinsurance exposure.
Dynamics could be challenged for aggregates and in the lower tiers of reinsurance towers during the January 2024 renewals, but Gallagher Re expects conditions to be much healthier in the higher tiers, where competition will be stronger.
Knapp explained: “There are now signs that reinsurers are starting to look at this market in a more significant but selective way.
“The willingness of reinsurers to move capacity higher up in programs to more distant layers will result in sufficient capacity at these levels, which could result in reduced pricing pressure. The challenge for version 1.1 is therefore to balance this dynamic with the desire of reinsurers to support programs at all levels.
Knapp noted that while reinsurers are not interested in purchasing blanket coverages, they are more willing to provide coverages for second and subsequent events, with a quarter saying they would purchase this type of reinsurance product .
Price increases will also likely be more targeted to 2024 reinsurance renewals.
Knapp said: “For no-loss real estate Cat XOL exposures, 84% of our respondents said they expected a price increase of less than 20%, with 46% indicating an increase of less than 10%. A small number even indicated that they expected prices to fall by up to 5%.
“This outlook for buyers is better than last year, when a fifth of reinsurers expected prices to rise by more than 20%, and no insurers expected rates to fall.”
However, Knapp also explained that “for portfolios that were impacted by losses, 68% of respondents expected a price increase of 10% to 30%.”
But for insurers retaining more risk and losses, this trend could continue.
“Insurers should expect pressure from reinsurers to increase retention in some cases. The survey found that 78% of respondents indicated that more than 10% of their portfolios would require an increase in retention, and 39% indicated that they would push for an increase in retention on at least 20% of their wallet. At a minimum, reinsurers will seek to keep retentions in line with changes in exposure and inflation,” Knapp said.