60% expect property cat rates to fall, 86% expect T&Cs to loosen: Fitch reinsurance survey

Reinsurance companies are set to enter renewal negotiations from a position of capital strength, but the majority are expecting a challenging outcome, with prices expected to fall and terms and conditions expected to loosen further, a survey by Fitch Ratings found.

In a survey carried out during the annual Monte Carlo Rendez-vous event, Fitch Ratings found that reinsurance market conditions are driving underwriters to reduce their focus on property and property catastrophe risks, with fewer than 10% of respondents to its survey highlighting those lines of business as a high-priority for capital allocation.

Instead, life and health is the business line deemed highest priority for allocating reinsurance capital to, among traditional reinsurers surveyed, followed by financial solutions, specialty, then property and property cat.

Perhaps tellingly and aligned with some of the discussions coming out of the Rendez-vous this year, among the cohort of reinsurers surveyed, US and international casualty were only deemed high-priority for capital deployment in 2027 by just 1% of respondents each.

But, despite the fact reinsurers are saying their focus is elsewhere, conditions aren’t changing according to Fitch, who said that as capital supply continues to outpace demand for reinsurance protection the rating agency believes, “this factor will extend the buyer-friendly P&C market conditions, and increase pressure on reinsurers to achieve the best risk-adjusted returns with the lowest capital intensity.”

58% of respondents said that they expect terms and conditions will loosen selectively at the reinsurance renewals in 2027, with a further 28% saying they expect terms and conditions will loosen broadly and just 14% said T&Cs are expected to remain unchanged.

The rating agency commented, “This is in line with Fitch’s expectation that persistent excess capital in P&C will drive continued competition among reinsurers, but that this will increasingly focus on terms and conditions rather than pricing, for example through lower attachment points or broader event definitions.”

Specifically on property catastrophe reinsurance renewals, 60% of respondents said they expect pricing to decline further in 2027, with 20% of those predicting pricing to decline by more than 10%.

Interestingly, 7% of reinsurers surveyed said they expect pricing will rise in property cat risks in 2027, which currently seems a hopeful outlook given the direction of travel seen this year and the fact rates remain above recent historical soft market lows.

Overall, Fitch is not concerned about the situation for reinsurers it seems, maintaining its deteriorating outlook for the global reinsurance sector, but saying, “We do not expect P&C margin and revenue erosion to materially affect the sector’s very strong capital position. Rising capitalization buffers and strengthened reserve adequacy provide a solid base for the sector to maintain strong credit fundamentals, and the vast majority (88%) of Fitch-rated global reinsurance groups are on Stable Outlooks.

“Nevertheless, intelligent cycle management, and navigating the trade-off between growth and profitability at renewals, will increasingly differentiate individual reinsurer performance.”

With the excess of traditional reinsurance capital deemed to be the main driver of recent market softening, the fact major reinsurers may now reduce their focus on property and property cat risks could help to alleviate some of the pressure, you might think.

But, returns remain attractive and so selective growth is likely to continue, we suspect, as was seen through the last softening cycle in the 2010’s.

Which drives home the need for continued discipline, both among reinsurers still targeting property lines of business and participants in the insurance-linked securities market.