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As per a new report from Gallagher Re, buyers of property catastrophe reinsurance have been able to negotiate better terms and conditions on their contracts in 2024 due to the “risk on” approach taken by reinsurers.
The reinsurance broker explained that this has resulted in improved pricing, with risk-adjusted catastrophe placements remaining flat to -10%.
“Reinsurers have been more willing to adjust premiums rather than the structure of the contracts,” Gallagher Re said.
The firm’s report added that while reinsurers have not been significantly affected by natural catastrophe losses in Q1 of 2024, there have been estimated economic losses of USD 43 billion, and insured losses of USD 20 billion, primarily driven by severe convective storms (SCS) and secondary perils such as wildfires, droughts, and floods.
Meanwhile, “unexpected” flood losses in the UAE, Southern Germany, and Brazil in Q2 of 2024 are said to have reinforced reinsurers’ discipline in retaining risk, with “no signs” of flexibility.
Gallagher Re continued, “The demand for additional capacity, including an extra USD 3 billion to USD 5 billion for Florida, has been met.
“Predictions of an active 2024 North Atlantic Hurricane season have not significantly affected the pricing and capacity of traditional reinsurers.
“However, some insurance-linked securities (ILS) capacity providers, industry loss warranty (ILW) capacity and retrocession capacity providers have moderated their appetite for US and Caribbean Catastrophe exposure.”
Elsewhere in the report, Gallagher Re observed that reinsurers experienced near-record returns in 2023, with many achieving a return on equity (ROE) exceeding 20%.
Q1 of 2024 has also shown strong results, with up to a 12% improvement in combined loss ratios, according to the reinsurance broker.
“These positive outcomes can be attributed to several factors, including benign natural catastrophe activity, adjustments in the reinsurance market, improved conditions in primary markets, and higher reinvestment rates. This has created a more favourable market for buyers, as there is sufficient capital to meet demand,” Gallagher Re said.
The firm continued, ” Non-life insurance-linked securities (ILS) capital reached a record level of USD 107 billion at year end 2023 and continued to grow in H1 2024, driven by successful cat bonds and
increased investor interest. However, new capital in the form of rated entities is limited.”
Gallagher CEO, Tom Wakefield, commented, “This more comfortable market for buyers has been underpinned by an increasing supply of capital to meet demand as reinsurers’ balance sheets have expanded on the back of strong 2023 and Q1 2024 results.
“Should 2024 close with a financial result similar to the excellent 2023 result, there will inevitably be a softening pressure going into 2025.”
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