Specialty re/insurance rates remain adequate on average and are trending downward, though a soft market is likely still 2–3 years away, according to a recent report by Peel Hunt.
Following their participation in the recent Lloyd’s Tour, Peel Hunt analysts met with management teams from Beazley, Conduit Re, Hiscox, and Lancashire.
All teams agreed that specialty re/insurance remains a cyclical market, with rates expected to be on a downward trajectory from here.
While the trajectory for a soft market aligns with Peel Hunt analysts’ expectations so far, underwriters believe the floor of the next downcycle will likely be higher than the previous trough. This is due to a higher-risk environment—particularly in property catastrophe—and ongoing uncertainty around claims inflation, especially in casualty lines.
“We are 2-3 years away from a being in the throes of a soft market, with 2025 underwriting margins still earning through the attractive rates written in 2023/24, and 2026 earning through very adequate rates written in 2025,” analysts said.
The report also noted that organic growth is becoming more challenging, though opportunities remain in areas such as environmental liability, as not all classes are softening at the same pace. Some lines—such as cyber and aviation—have already been softening for some time and may require a reset.
Property catastrophe lines remain highly attractive at current rate levels, despite signs of high single- to low double-digit rate declines this year. Meanwhile, the broader casualty market appears relatively stable.
From here, Peel Hunt expects rate reductions as competition rises, followed by a loosening of terms and conditions, reduced deductibles, and broker pressure through a reduction in signings as programmes become oversubscribed.
The supply of capital is increasing, fuelled by retained earnings from traditional carriers rather than new entrants or third-party capital—driving rates down today.
During the Lloyd’s Tour, analysts also observed concerns over the growth in broker facilities and the (smart) follow market, as well as the number of new managing general underwriters being created, though they noted these trends have not yet affected rate adequacy.
Nevertheless, in due course, capital management (special dividends, share buybacks) is a tool specialty insurers intend to use more rigorously to maintain discipline and reward investors.
Peel Hunt also outlined key themes that emerged for managing the cycle. Underwriting portfolios are now more diversified than at the onset of the previous soft market, giving underwriters greater flexibility. Should a soft market accelerate, all carriers confirmed they would reduce exposures in the wholesale market (i.e. Lloyd’s and reinsurance), use hedging to protect net margins and reduce volatility, and rely on rebuilt reserve buffers to help smooth the impact of margin pressure.
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