A new Gallagher Re report highlights key trends from the April 1 reinsurance renewals, noting a shift towards “risk on” in the reinsurance markets, particularly within the property catastrophe space.
The shift has led to increased capacity at the upper end of programs and a gradual improvement in risk-adjusted pricing at firm order terms. Despite a disciplined approach to quoting, with reinsurers initially hesitant to offer discounts, there was a clear willingness to increase shares in the market.
Reinsurance underwriting conditions observed at the conclusion of the FY2023 reporting season, which ended in Q1, were among the best witnessed in over two decades. This period marked a significant shift in how risk is distributed between primary and secondary markets across property catastrophe and specialty segments, leading to a markedly improved narrative for reinsurers’ equity.
Gallagher Re noted that this shift has resulted in markedly higher valuations for reinsurers, reflecting the industry’s renewed optimism after several challenging years.
In the US market, the demand for additional limit was fully met, with new layers being introduced without direct year-on-year pricing comparisons. However, the availability of capacity for these top-end programs was aligned with underlying placement pricing, effectively eliminating the need for inverted pricing strategies.
Gallagher Re also delved into specialty classes, noting that the quoting process faced complexities due to structural changes, including higher retentions. Nonetheless, pricing in specialty reinsurance and retrocession moderated slightly more than in the catastrophe market, starting from a higher base.
Regarding large Japanese catastrophe excess of loss programs, Gallagher Re observed a consistency in quoting, with reinsurers proposing flat to very modest risk-adjusted rate increases, with few deviations.
The reinsurance market currently enjoys increased capacity, attributed to several factors including improved underlying combined ratios, a relatively light load of natural catastrophes, and better investment income.
This increased capacity, combined with a greater appetite from reinsurers, is anticipated to facilitate more favorable terms and conditions for clients, despite ongoing challenges related to natural catastrophe exposure.
Gallagher Re concluded that the April 1 renewals allowed property and specialty insurance buyers to secure increased capacity, finalize and clear programs on improved terms, and garner support in critical non-catastrophe areas, underscoring a period of advantageous market conditions for reinsurance clients.
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