Softening “inevitable” if reinsurance results are strong in 2024: Gallagher Re CEO Wakefield
If the performance of the reinsurance market in full-year 2024 is similar to the excellent returns generated in 2023, Gallagher Re CEO Tom Wakefield has warned that “there will inevitably be a softening pressure going into 2025.”
Reinsurance capital has increased, helped by the earnings generated by reinsurers and the returns generated by insurance-linked securities (ILS) strategies, all of which has helped to increase the pressure on pricing at the mid-year 2024 renewal season.
Gallagher Re CEO Tom Wakefield commented on the renewals today, “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.”
Factors that drove 2023’s very strong performance and returns in reinsurance underwriting and investment have “created a more favorable market for buyers, as there is sufficient capital to meet demand,” Gallagher Re said this morning.
As well as traditional reinsurers capital recovery, helping to drive the improved situation has also been the build-up in ILS capital through 2023.
Gallagher Re had reported in April that non-life alternative reinsurance capital rose by 11.5% to a new record high of $107 billion by the end of 2023.
As we reported last week, rival Aon has pegged alternative and ILS capital in reinsurance at a record-high of $110 billion at the mid-year of 2024.
At the mid-year reinsurance renewals, thanks to this build-up of capital, Gallagher Re said that, “Buyers of property catastrophe insurance have been able to negotiate better terms and conditions on their reinsurance contracts due to the “risk on” approach taken by reinsurers.”
The broker continued, “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.”
Loss activity, while not significant enough to erode capital levels, has been sufficient to steel reinsurer resolve, Gallagher Re believes, saying, “Unexpected flood losses in the UAE, Southern Germany, and Brazil in the second quarter of 2024 have reinforced reinsurers’ discipline in retaining risk, with no signs of flexibility.”
Like its rival Aon, Gallagher Re also noted there has been increased demand at the mid-year, including an extra between $3 billion and $5 billion of demand for catastrophe reinsurance in Florida alone.
The forecasts for a very active hurricane season have not greatly affected reinsurer appetites, but the broker said that, “Some ILS capacity providers, ILW capacity providers and retrocession capacity providers have moderated their appetite for US and Caribbean Catastrophe exposure.”
Encouragingly though, CEO Wakefield noted that, “Reinsurers are currently maintaining a balance between revenue growth and profit margins.
“There is no evidence of any major reinsurer deviating from this approach to drive top-line growth through looser underwriting and pricing.”
There is a long way to go before we move into a softening market environment in 2025, with the bulk of the Atlantic hurricane season still to run and plenty of other wildcards that could come the way of the industry.
But, with reinsurance and ILS contracts generally attaching higher up and at stricter coverage terms, there is also more chance of the sector getting through the season without really significant capital erosion occurring.
So reinsurance remains finely balanced for now and (as ever) it is hard to predict how rates will move at January 2025’s renewals at this stage.
But Wakefield is no doubt right, that if the industry has another very profitable year, reinsurance will likely see further softening, or at least moderation, in 2025.
Read all of our reinsurance renewals news.
