Further reinsurance market softening seen likely: Gallagher Re CEO

It is hard to see anything other than further small price improvements for reinsurance cedents given the strong state of both traditional and alternative reinsurance markets at this time, Tom Wakefield, CEO of broker Gallagher Re has said.

The reinsurance broker’s CEO is anticipating further softening it seems, thanks to the increased levels of reinsurance capital in the sector.

Gallagher Re this morning estimated that reinsurance industry capital has grown by roughly 12%, while alternative or insurance-linked securities (ILS) capital was also up by double-digits in 2023.

Driving home just how much more stable the reinsurance marketplace is today than it was a year ago, Gallagher Re noted that protection buyers were able to access increased capacity, firm order and clear programs at improved terms, as well as secure support in critical non-cat areas.

The broker notes that in 2023 the main driver of the challenging market dynamic was a reluctance to deploy limit, rather than any shortage of deployable capital.

But, in 2024, the appetite to deploy limit has improved significantly and also deployable capital has increased as well, resulting in much more attractive market conditions for buyers.

“Industry capital has increased by roughly 12%, driven by a mix of much improved underlying combined ratios, a light natural catastrophe load (despite insured catastrophes across the industry being heavy), and better investment income,” Gallagher Re’s CEO Tom Wakefield explained.

“Increased capacity, coupled with increased appetite, should lead to an easing of terms and conditions for clients despite the increased challenges facing the insurance market on natural catastrophe exposure,” Wakefield continued.

Gallagher Re also estimates that alternative capital in the reinsurance market, so that contributed by catastrophe bonds, other ILS investments and collateralized structures, has similarly increased by double-digits over the last year.

Alternative capital has been driven higher by the same market fundamentals of favourable catastrophe loss experience and elevated investment income, the broker explained.

CEO Wakefield noted that, “Despite there being no signs of a significant influx of new capital yet, other than into some of the best performing ILS funds, it is hard to see anything other than a slight further improvement in pricing from the cedant’s perspective.”

Suggesting that Gallagher Re is anticipating further softening and of both price and terms, as its commentary suggests a market that has more room to give back to the primary insurers, before it hits a limit in terms of its risk-appetite.

Wakefield’s commentary even suggests that softening could perhaps be more of a market feature, should discipline slide in certain pockets of the marketplace.

“It remains to be seen if the reinsurers who are falling behind their growth targets will maintain the same pricing discipline at the mid-year renewals which represent the last chance to achieve their 2024 revenue goals,” the reinsurance broker’s CEO said.

Read all of our reinsurance renewals news.