This year's January reinsurance renewals were characterized as 'stable,' 'predictable,' 'orderly,' 'calmer,' and 'disciplined,' marked by 'increased appetites' and a return to supply/demand balance. The shift in tone is notable compared to last year's challenging January renewals.
In a significant departure from a year ago, the abundance of property catastrophe reinsurance capacity at the January 1 renewal surpassed demand, creating a competitive landscape for peak perils and upper layers, as outlined in Aon's market report titled "Reinsurance Market Dynamics – January 2024." Aon notes that most reinsurers approached the renewals with aspirations to expand in property catastrophe reinsurance, contributing to a more consistent market in pricing and terms.
Gallagher Re's 1st View report, appropriately titled "What a Difference a Year Makes," echoes this sentiment, stating, "This year, property supply and demand has snapped back into balance, with returns for the first three quarters of 2023 exceeding reinsurers’ increased cost of capital." The report attributes this equilibrium to retained earnings, modest new capital raises, ample retrocession capacity, and a robust insurance-linked securities (ILS) market, all contributing to the increased availability of catastrophe reinsurance limits.
Reinsurance Buyers Experience 'Smoother' January Renewals with Abundant Capacity: Carpenter
Gallagher Re highlighted that the structural shifts witnessed in the January 2023 renewals were an anomaly, with the subsequent renewal period in January 2024 proving much calmer and showcasing improved alignment of expectations among all involved parties.
Aon's report emphasized that the January 1, 2024 treaty renewal unfolded smoothly, benefiting from a rebound in profitability, capital rebuilding, and increased availability of retrocession capacity. This positive environment prompted many reinsurers to exhibit heightened appetites at the enhanced terms established in 2023.
Howden, in its report titled "A New World," echoed this sentiment, stating that the renewal occurred in a more favorable supply dynamic and underwriting discipline, resulting in a stable and orderly process. Pricing remained generally stable, with variations influenced by loss experience, and structures saw incremental changes following significant adjustments in 2023.
David Flandro, Head of Industry Analysis and Strategic Advisory at Howden Tiger, noted that dedicated reinsurance capital had nearly reached record levels. The reinsurance market's structure continues to evolve, with alternative capital now comprising nearly a quarter of the total.
Retentions remained stable, but pressure on pricing from healthy capacity levels led to strong signings. Capacity for frequency protection was in high demand, causing increased competition and oversubscription of some higher-attaching layers at competitive prices.
As the renewal season progressed, discussions centered on reinsurer signing activity, with excess capacity surpassing demand year on year. Expected returns remained a crucial factor for reinsurers, and while capacity was available where return thresholds were met, some buyers expressed dissatisfaction with the lack of capacity for earnings protections.
Gallagher Re and Howden both indicated signs of over-placements on well-structured programs, suggesting that certain buyers would experience improved positions in 2024. Reinsurers managed to hold their positions in terms of pricing and structure, but not always their shares, reflecting the evolving dynamics of the market.
Cedent Challenges
For many cedents, 2023 proved to be a challenging year, with eroded capital buffers due to unrealized investment losses. Additionally, higher retentions imposed by reinsurers in 2023 further reduced reinsurance coverage. Aon highlighted that insured losses from natural catastrophes remained elevated, exceeding $100 billion for the fourth consecutive year. Howden's report noted that reinsurers' structural retreat from frequency risks in 2023 contributed to increased insured losses borne by insurers, impacting ceding companies globally.
