Casualty ILS inflows an incremental negative. Cat may soften more than RVS suggests: KBW

Analysts from KBW see the influx of capital into the casualty reinsurance market through insurance-linked securities structures as negative for reinsurers, while on the property catastrophe side they caution that rate softening often tends to be more pronounced than the headlines from the RVS suggest.

KBW’s analyst team attended the 2026 Monte Carlo Rendez-Vous (RVS) event and came away with “mostly unhappy takeways,” from the point of view of their analysis of the reinsurance sector.

In summary the KBW analysts explained, “Our primary takeaway from this year’s Reinsurance Rendezvous – where we met with 16 companies over two days – is ILS investors’ growing interest in casualty lines, which will probably sustain decelerating casualty (re)insurance rate decreases for several years. Reinsurers also seem broadly resigned to circa-10% property catastrophe reinsurance rate decreases during the upcoming January 1, 2027 renewals, although several executives suggested that bigger rate increases would justify walking away given the implicit rate inadequacy.

“Overall, we left Monte Carlo more pessimistic about the reinsurers (ironically, disciplined reinsurers are most likely to disappoint on premium production) and a little more optimistic about several of the (re)insurance brokers’ expanding profiles.”

On casualty reinsurance sidecars, which were a hot topic during the RVS this year, KBW’s analyst team notes that many major casualty reinsurers are cautious of US casualty trends, with still-elevated social inflation and limited tort reform, while at the same time rate is tepid.

“In contrast, asset managers and brokers reported considerable investor interest in casualty-focused insurance-linked securities (ILS), attributable – at least in part – to limited alternatives,” the analysts said.

While some reinsurers reported that they see the inflows to casualty ILS structures as likely to prove “modest and disciplined” others pointed to the fact the US commercial casualty space is not that large, so inflows will affect the rate environment.

KBW stated, “We view these casualty capacity inflows as an incremental negative for casualty reinsurers. All else equal, a dollar of capacity can support more casualty premium than catastrophe premium, and by definition, casualty’s longer tail means that it takes longer to identify and correct poor underwriting and pricing than is true for shorter-tailed lines. Interestingly, many of these structures’ typically 7-10 year lifespans means some underwriting risk could ultimately return to the sponsoring underwriters, but we see that as too remote a concern to impact current market dynamics.”

On property catastrophe reinsurance and the outlook for 2027 renewals, KBW’s analysts said most re/insurance executives are anticipating 10%+ rate decreases, with bigger declines for higher-layers, at January 1.

KBW’s team said, “Our experience is that actual 1/1 pricing is usually (certainly not always) worse than the preceding Monte Carlo expectations, which suggests bigger property catastrophe decreases than the currently projected roughly 10%.

“Even decelerating rate decreases exacerbate previous decreases’ underwriting margin pressure, which we view as a critical reinsurer metric.”

While reinsurers are saying that steeper property cat reinsurance rate declines could drive them to walk away, that has always tended to be the message that comes out around the time of the RVS.

Most industry participants we met with said a -10% property cat rate decline is optimistic given the levels of capital in the industry and the fact demand growth may not be sufficient to absorb it all, as well as the additional capacity to come from retained earnings of reinsurers and ILS fund managers.