Navigating a tighter reinsurance market…

After a benign first half of the Atlantic hurricane season, the mood music from last month’s Monte Carlo Rendez-Vous had signaled that upcoming reinsurance renewals would likely follow the pattern seen in 2024, with moderate softening in the 5-10 percent range.

Reinsurers were sticking to the script that they would maintain discipline and there was no real expectation that they would back down on the higher retentions that were almost universally imposed on cedants in 2023.

But there was a sense that stronger appetite from reinsurers for property cat could be played on by buyers as they looked for reinsurance support for the more challenging area of US casualty.

Hurricanes Helene and Milton may not have led to that script being torn up altogether, but they have shifted dynamics as 1 January renewal discussions begin to pick up pace.

There is no expectation that the reinsurance market will respond with the kind of “knee-jerk” reaction seen in the aftermath of Hurricane Ian two years ago.

But there is a growing consensus that the storms will at least have the effect of flattening pricing in property cat treaty.

The wide range of insured loss estimates – particularly for Milton – illustrates the uncertainty over the final quantum at this stage, in part because of the overlap of the storms in some areas.

There is no sense at this juncture that there will be a major impact on reinsurance capacity supporting property MGAs, but flattening or modest hardening of reinsurance pricing could have an impact on primary pricing, which is expected to harden in areas directly impacted by losses.

Meanwhile, the casualty treaty market was already headed for some hardening, amid mounting concerns over loss cost trends and reserve adequacy on the underlying business. Reinsurance brokers have been recognizing there is downward pressure on ceding commissions and more robust excess of loss rate increases are anticipated.

Reinsurers are also expected to be increasingly selective in where and how they deploy their capacity.

While a return to full hard market territory is not expected, incrementally tighter reinsurance market conditions and their impact on the primary market is something to watch for in the MGA sector over the coming months.