Reinsurers Maintain Their ‘Heightened Risk Aversion’ During June 1 Renewals: Report

Reinsurance rates continued to harden during the June 1 renewals, with risk-adjusted property-catastrophe pricing up 33% on average, according to reinsurance broker Howden Tiger.

Prices rose within a typical range of 25% to 40%, including important variations by layer, which follows an average uptick of 25% in 2022, said a report on the June 1 renewals published by Howden Tiger.

The price increases were underpinned by enduring, low levels of capital to risk – although this is starting to shift – in addition to an ongoing confluence of global and local pressures, the report said.

“Risk-adjusted property-catastrophe pricing at [June 1] has reached new high with multiple factors altering the landscape of risk management. Low – albeit recovering – levels of dedicated capital persist. The industry is in a period of heightened risk aversion and stands at a crossroads, demanding strategic adaptability and expertise to navigate changing market dynamics,” the report continued.

Loss-Affected Programs

Hurricane Ian loomed large during the renewals, said the report, explaining that portfolio trends and Florida concentrations affected risk-adjusted rate changes with loss-affected programs in some cases experiencing increases exceeding 40%, depending on loss scale and effect.

“Higher layers also saw increases in excess of 40% year-on-year, notably affected by new minimum rate-on-line thresholds. This was the case for both earthquake and wind covers,” said Howden Tiger.

(Editor’s note: The charts below are sourced from “NOVA,” which is Howden Tiger’s insurance business intelligence platform that uses proprietary the broker’s pricing and placement information, loss trends, regulatory submissions and broader market financials, to provide a view of the insurance market.”)

Capacity Availability

Markets were strongly engaged in the lead-up to renewal where products, premium and limits fell within risk tolerances, the report said. “The trend of private placements evident in prior renewal cycles continued, but mainly as a play for early capacity as opposed to shortfall cover.”

Indeed, Howden Tiger said the marketing for many June 1 programs began in late January with strategic placements setting the tone as early as March when noticeable appetite for higher layer risks from both traditional and ILS capacity providers emerged.

Challenges to Lower Layers

Dynamics in lower layers remained challenging with cedents increasing retentions and, in some instances, altering underwriting guidelines, the report said, noting, however that capacity was available given the right structures and price points as reinsurers moved up the curve with higher layer participations finishing over-subscribed in some areas. Higher pricing and additional reinstatement premiums were characteristic of lower layers.

Global Factors Reshape Market

Financial market volatility, inflation, geopolitical tensions, recent weather losses and the Turkey earthquake all weighed on underwriters as they allocated capital, the report explained. This was mitigated by a moderate recovery in dedicated reinsurance capital since the beginning of the year, and by legislative reforms in Florida.

“The reinsurance market is in a transformative period, shaped by a coalescence of events”, said David Flandro, head of Industry and Strategic Advisory, Howden Tiger. “Although dedicated reinsurance capital has recovered somewhat since its low at the beginning of the year, challenges persist with historically high catastrophe losses, heightened geopolitical and financial risks and increased connectivity converging to create a climate of amplified risk aversion.”

“Given strong rate hardening, the need for strategic planning and dynamic placement strategies has become paramount. This isn’t just about finding capacity; it’s about finding the right capacity that fits our clients’ risk profiles and financial objectives while adapting to an industry in transformation,” according to Wade Gulbransen, head of North America, Howden Tiger.