Reinsurance Market Sees Improvements at July 2024 Renewal

Reinsurance buyers encountered a more favorable market during the July 1, 2024 renewal period compared to previous years. This positive shift was anticipated due to near-record returns for reinsurers in 2023, which saw returns on equity (ROE) exceeding 20% in many cases. The first quarter of 2024 continued this trend with up to a 12% improvement in combined loss ratios, bolstering reinsurers’ capital bases and their confidence in deploying capital. Additionally, non-life insurance-linked securities (ILS) capital has reached record levels, driven by increased investor interest. These factors have resulted in a market with sufficient capital and capacity to meet demand.

Property:
Pricing improved with risk-adjusted catastrophe placements remaining flat to -10%.

Demand for additional capacity, including USD 3-5 billion for Florida, was met.
Predictions of an active 2024 North Atlantic hurricane season did not significantly impact traditional reinsurers’ pricing and capacity, though some ILS and retrocession capacity providers moderated their appetite for U.S. and Caribbean catastrophe exposures.

Estimated economic losses of USD 43 billion and insured losses of USD 20 billion in Q1 2024 were driven by severe convective storms (SCS) and secondary perils. Unexpected flood losses in UAE, Southern Germany, and Brazil in Q2 2024 reinforced reinsurers’ ongoing discipline on retention levels.

Casualty:
Underwriters in the casualty sector expressed less confidence than those in the property sector due to concerns over rate adequacy in the U.S., driven by adverse developments reported by liability insurers in Q4 2023.

Successful placements were achieved by cedants who effectively communicated their underwriting and pricing strategies, supported by strong analysis.

While supply and demand dynamics remained stable with adequate capacity, minor changes in reinsurer panels indicated a lack of consensus on underlying issues.

Specialty:
Reinsurers in specialty lines maintained underwriting discipline, resulting in no capacity constraints for reasonably priced and structured programs, except for UNL retrocession.

Market Dynamics and Future Prospects
The report from Gallagher Re emphasizes that the favorable market conditions are underpinned by robust risk controls among insureds, creating a foundation for exposure-led growth, ongoing profitability, and innovation. Growth is set to be driven by international markets and small and medium-sized enterprises (SMEs). This trend highlights the importance of expanding beyond the U.S., which has historically dominated the cyber insurance market, accounting for approximately two-thirds of global premiums.

International Expansion
Major European economies such as Germany, France, Italy, and Spain have significant potential for premium uplift if they can replicate the penetration levels of more mature markets like the UK.

The report projects that more than half of premium growth up to 2030 will come from non-U.S. territories, with Europe, Latin America, and Asia identified as key growth areas​​.

SME Sector:
SMEs, which account for close to half of GDP in advanced economies, represent a significant opportunity as brokers and insurers develop better ways to serve this underserved demographic. Innovative platforms, such as Howden’s SME Cyber Platform, enable SMEs to purchase substantial cyber coverage with minimal information required, demonstrating the market’s adaptability and focus on simplifying the buying process.

Key Takeaways:
The 2024 renewal period reflects a balanced and favorable market for reinsurance buyers, supported by strong capital positions and increased capacity. The focus on improved cyber hygiene and disciplined underwriting has resulted in stable pricing and sufficient capacity to meet demand, particularly in the property and specialty lines. The casualty sector, while more cautious, still offers opportunities for those who can effectively communicate their strategies. The international expansion and focus on SMEs are poised to drive significant growth in the coming years, with innovation and tailored solutions at the forefront of market development.