Analysts at Peel Hunt estimate that loss-free risk-adjusted rates across a diversified reinsurance portfolio fell by around 6% at the January 1st, 2025, renewals, but stress that rate adequacy remains “very attractive” in property classes, with exposure growth and lower hedging costs expected to partially offset rate decreases.
Following the release of broker reports, Peel Hunt has commented on the January 1st renewals “amid signs the cycle has peaked.”
Analysts note that after consecutive years of double-digit returns on capital, reinsurance companies opted to put more capital to work at 1.1 2025.
In fact, according to Guy Carpenter, the reinsurance broking arm of Marsh McLennan, property cat renewals were consistently oversubscribed as reinsurer appetite increased by 10% to 15%, with demand for protection only rising by around 5%.
“At this year’s renewals, traditional reinsurers increased capacity, outstripping the ongoing rising demand for cover from cedents,” said analysts. “We estimate that most of the increase in capacity has been allocated to Property and Specialty classes, while Casualty remains relatively stable amid ongoing concerns about US Casualty price adequacy and reserve quality across primary carriers.”
Across individual classes, rates were down in the high-single-digits for property cat excess of loss lines, down in the mid-single-digits for specialty classes, and broadly flat for casualty reinsurance.
In property cat reinsurance, Peel Hunt notes that, on average, rates declined by around 9% on average, which is higher than its -5% initial estimate, although the premium impact will likely be partially offset by exposure growth.
However, rates in this market are still around 60% higher than the 2017 low, while the cost of hedging in the retrocession market declined by around 12% for reinsurers, leading to a net impact on underwriting margins of closer to 7-8%, according to Peel Hunt.
In property non-cat, rates fell by a more modest 2% at 1.1 2025, with one broker suggesting rates in the US are up across nationwide accounts but down in Europe. Further, non-cat property retro rates also reduced by around 5%, leading Peel Hunt to suspect the net decline in rate will have been relatively flat.
“Nevertheless, rate adequacy remains very attractive in property classes, and we expect exposure growth and lower hedging costs to partially offset rate declines,” said Peel Hunt.
While rates declined at 1.1, importantly, reinsurers held firm on terms and conditions and maintained underwriting discipline, with the higher attachment points implemented in 2023 and 2024 largely unchanged.
“Primary insurers continue to increase reinsurance limits to offload more tail-risk to the reinsurance industry. However, primary insurers were less successful in persuading reinsurers to hedge their lower-layer frequency exposures in the US, though they were slightly more successful in renegotiating attachment points in Europe, where some brokers suggest leading reinsurers were defending their market,” analysts said.
“We have already factored in a softening cycle in our estimates for the next three to four years, so rate declines do not come as a surprise. Peak to trough, we have factored in reinsurance rate declines of c.35% over the next five years. We believe we have been prudent in terms of the quantum of rate softening, but will fine-tune our estimates regarding the timing and phasing of rate declines over the next few years,” concluded Peel Hunt.
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