The global reinsurance market is expected to liberalize tariffs in 2024
Marsh McLennan has released its Commercial Property Insurance Trends 2024 report, which highlights a more balanced reinsurance market compared to the tough conditions of 2023.
This was due to significant changes in political structures, which led to an increase in the holdings of insurance companies. Insurers, faced with skyrocketing insurance costs, have been forced to consider reducing limits, absorbing higher deductibles and facing rising premiums.
In addition, active secondary exposures and changes in reinsurance contract structures have resulted in insurance companies covering more losses themselves rather than passing them on to reinsurers. However, the broker says that the volatility of the global reinsurance market in 2023 has decreased.
“Following the renewals of reinsurance contracts in January 2024, the overall average increase in risk-adjusted reinsurance tariffs was single-digit. As there is more optimism in the reinsurance market, we can expect a gradual increase in capacity,” adds Marsh. Another positive development in the broker’s report is the expansion of coverage options for new contracts in 2024, including previously excluded or limited perils such as terrorism, riots and civil unrest.
Increased demand for property reinsurance cover is largely being met by the market ahead of January, although there has been an increase in retentions and tighter reinsurance conditions introduced in last year’s update.
In general, property reinsurance rates are slightly increasing (risk-adjusted), with almost no change in the US and moderate increases in Europe.
Reinsurers are cautious about reducing risk transfer fees and tightening reinsurance terms. Ultimately, this resembles a market where reinsurers retain control of underwriting and are likely to continue to deal with specialty risks after the renewal in 2024, especially if the market’s fears about casualty insurance materialize more fully in the coming quarters due to significant losses in 2015-2019 in USA.
Marsh McLennan estimates that as the reinsurance market continues to improve and insurers become more interested in reinsurance again, rate growth is expected to slow due to increased competition among reinsurers.
Despite the slowdown in growth, reinsurers and London market players continue to enjoy attractive market conditions as prices hit new highs, while the structural changes in conditions achieved last year remain in place until 2024, analysts at Berenberg believe. However, the focus has shifted somewhat since last year, not only on growth and capital deployment, but also on capital return.
In the report, the company surveyed 24 insurers, 53 investors and 40 reinsurers about the outlook for the property reinsurance market. “London market players have been particularly constructive on the opportunity for capital growth as the anomalous growth of the past couple of years slows, so there is a solution to focus on capital return and growth.”
Although underwriters cannot accurately predict the frequency or severity of losses in 2024, analysts believe that a significant event of more than $75 billion in losses would have to occur for the reinsurance market to be seriously concerned.
Moody’s predicts a peak in reinsurance rates in 2024 after rising significantly in recent years, particularly in 2023, which saw one of the sharpest increases in property catastrophes in a decade.
As of January 1, 2024, at the time of renewal of reinsurance contracts, prices continued to rise, albeit less than a year earlier, and the result suggests that reinsurers have the opportunity to push through additional moderate increases in April and summer, especially in property classes.
Meanwhile, higher earnings in 2023 will encourage some players to expand reinsurance capacities and take on more risk, and Moody’s believes the positive results could also lead to more inflows of alternative reinsurance capital after the easing period. All this, analysts say, will make the dynamics of supply and demand for reinsurance less favorable.
Analysts expect reinsurance rates to peak at some point this year, but of course the outlook could change. Secondary perils such as floods, wildfires and severe convective storms caused losses for the insurance industry in 2023, and if a similar story happens this year with a major hurricane making landfall in the US, the supply and demand dynamics could change again.