Property cat renewal rates: Euro up to 5%, US up to 15%, Retro 15-20% (agg 35%+)

After meeting virtually with Bermuda-based reinsurance companies and brokers, analysts at KBW said that they expect the renewal outcome to be generally positive, with satisfactory rate increases expected, but nothing spectacular.

The analysts provided some insights into where Bermuda based reinsurance carriers and their brokers expect to see property catastrophe rates rise and by how much at the all-important January 1st 2021 renewals.

Every Bermuda market reinsurance executive, that KBW’s analyst team met with, still expects to see property reinsurance rate increases at January 1st.

However, expectations are now moderated from where they sat a few weeks ago, as we explained in our recent article here.

That’s not to say renewal rates are going to disappoint, the property catastrophe reinsurance market looks set to be up globally, but once again there are expected to be differentiated rate increases depending on ceding company performance and loss experience.

While there is, as a result, expected to be some variation to these numbers and the eventual January renewal outcome, KBW’s analysts said that Bermuda reinsurance management teams are expecting to see the following rate increases, by region and class, in property catastrophe renewals.

European property catastrophe reinsurance renewals:

• Increases of up to 5%.

The January 1st reinsurance renewals feature a significant number of European cedents securing their coverage for the year, including numerous of the largest insurers and reinsurers operating in the region.

As Europe has not faced significant insured catastrophe losses recently, it has become an almost perma-soft marketplace, where the big four reinsurers dominate and drive the pricing.

As a result, many insurance-linked securities (ILS) fund managers had pulled back quite significantly on European cat programs in recent years.

But the promise of up to 5% rate increases in European property catastrophe programs may make some a little more tempted to get more involved in 2021, although this is unlikely to be a significant move as most ILS funds still remain much more focused on US risks.

U.S. property catastrophe reinsurance renewals:

KBW’s analysts report that the Bermuda market is expecting US carriers renewing their reinsurance at January 1st will face price rises as well.

• Increases ranging from high single digits, to up 15%.

US renewals at January 1st feature some of the largest domestic carriers, who are generally very well-capitalised.

As a result, KBW notes that rate increases in January may not be as high as seen last June/July and that rate increases at June 2021 for the more thinly capitalised Florida market may once again be more significant.

There are expected to be bigger increases for some US insurers that suffered losses from the Midwest Derecho event in August, while at the same time differentiation on cedent performance is likely to be a feature across the US renewals at January 1st.

Retrocession renewals:

Retrocessional reinsurance renewals are likely to see some of the steepest rate increases, it is believed.

• Increases of 15-20% (and up to +35% for aggregate covers).

Retrocession cedents are likely to experience significant tightening of terms as well, plus a shrinking range of product structures, we understand. This is as markets continue to try to reduce unexpected, or less predictable, loss scenarios from retro towers.

The retro market is perhaps the only segment of the property reinsurance focused segment of the January renewals that can be truly said to be moving towards a hard market though, as the other segments appear to be firming at this time and that momentum may be more short-lived.

The aggregate retrocession market looks set to be the hardest reinsurance renewal segment with a catastrophe risk focus, but it is also one of the most constrained, as capital continues to be re-deployed away from these towers, making capacity less abundant here.

Read all of our reinsurance renewals coverage here.