Attractive pricing levels, positive sentiment for property cat reinsurance into 2025: Jefferies

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There is a positive sentiment for property-catastrophe reinsurance heading into 2025, with pricing at very attractive levels, a factor that should continue to benefit UK specialty re/insurers, analysts at Jefferies concluded following recent meetings with global insurers, reinsurers and ILS managers in Bermuda.

“Property-catastrophe market remains attractive. Our overarching takeaway from meetings in Bermuda, was that market pricing remains at very attractive levels. As such, speciality insurers and reinsurers will likely continue to benefit from the firm market, in our view,” Jefferies stated.

Adding: “While industry press and brokers pointed to mid-single digit rate decreases into mid-year renewals, middle layers in which our coverage competes are stable (covering 1-in-5 to 1-in-25 year events), which is a positive surprise. We understand that the pressure to pricing was contained in the higher, more remote layers (1-in-100 or higher), that are weighted to ILS.”

Analysts also noted that, although supply has increased – due to a build up of retained capital and cat bond issuance – demand has increased as well, with reinsurers believing that there remains pent-up demand.

According to Jefferies, all the UK Specialty names (Beazley, Conduit, Hiscox, Lancashire) have good exposure to the firm market conditions, however, Lancashire has the highest exposure to property-cat re/insurance risks.

Heading into 2025, the market is expected to remain disciplined, and looking forward, sentiment amongst reinsurers towards property-cat reinsurance remains positive, Jefferies highlighted in its report.

It was also noted that companies expect the market to remain disciplined at the 1/1/25 renewals, regardless of the outcome of the hurricane season. However a benign hurricane season would likely lead to some rate reductions, analysts added.

A very active hurricane season is forecasted for 2024, with elevated risk of US landfall due to the positioning of the Bermuda high, according to experts.

“An active storm season would likely moderate ILS capital inflows in 2025 as well, which would support the pricing backdrop even further. Whilst the elevated forecasts were acknowledged in our meetings, traditional reinsurers stated that this has not influenced their underwriting approach in 2024,” said Jefferies.

The current environment and outlook for casualty reinsurance lines of business was another key topic of discussion in Bermuda.

Analysts noted that these lines are giving mixed messages, with uncertain inflation trends being a big factor influencing these views.

Jefferies stated: “Overall, messages were quite mixed. Most companies with exposure in casualty reinsurance stated that the underlying risk remains adequately priced, with a number of companies also noting that they are looking for greater reductions in casualty quota share ceding commissions.

“Lancashire, which launched its casualty reinsurance book in 2021, pointed out that rate increases have re-accelerated in 2024 YTD, with most of its exposure focussed in general liability, umbrella and excess lines of business. However, Hiscox stated that it does not have an appetite to grow in casualty.”

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