What P&C execs predict for 2024 reinsurance rates

Canada’s primary property and casualty insurers expect the upcoming Jan. 1, 2024, reinsurance renewal season to be more ‘orderly’ and ‘stable’ than at the same time last year, P&C industry execs told brokers attending last week’s Insurance Brokers Association of Ontario annual general meeting in Toronto.

“We know that [on] Jan. 1, 2023, we really saw big changes in terms of the structure of [reinsurance] programs,” said Heather Masterson, president and CEO of Travelers Canada, speaking on the CEO Panel at IBAOcon’23. “When we take a look at the year we’ve had [in 2023], we’ve had Cat activities that are over $3 billion for the first nine months of the year, but we’ve [also] had a lot of weather events.

“And when you take a look at the [Cat insurance] programs and talk to our reinsurers, they tell us that the…changes they’ve made to the programs in Canada have effectively done what they were supposed to do. So this year, they’re not trading dollars. We have healthy retentions, and the word is that we can expect [an] orderly quarterly reinsurance renewal season. So good news.”

The Jan. 1, 2023 reinsurance renewal season in Canada saw hefty premium increases for primary insurers seeking reinsurance cover for their Cat losses. Also, reinsurers changed technical terms and conditions. For example, they raised attachment points marking when reinsurance capacity kicks in (i.e., agreeing to cover one-in-five-year Cat return periods instead of two-year return periods).

Early this year, Canadian insurer portfolios without a significant Cat loss history saw reinsurance rate increases of 25% to 30%, while other portfolios with losses saw their reinsurance rate increases climb as high as 50% to 70%, Donald Callahan, managing director of Guy Carpenter Canada, said during a Canadian Underwriter webinar last April. This was in keeping with global reinsurance market trends.

Related: Reinsurance in Canada unlikely to cost less in 2024

The corrective actions appear to be working, P&C industry analysts said. In its 1H 2023 Reinsurance Market Report, Gallagher Re saw capacity returning to the global reinsurance market.

“Global reinsurance dedicated capital totalled $709 billion U.S. at half-year 2023,” Gallagher’s report stated. “This is up 13% from the restated full-year 2022 base, driven by strong investment performance and steadily improving underwriting results.”

Gallagher Re’s report showed the average combined ratio of more than 40 global reinsurers improved to 87.6% (down from 89.2% over the first half of last year).

“The underlying combined ratio also continued to improve, to 95.4% (2022 HY: 97.7%),” Gallagher’ Re’s report stated. “The underlying combined ratio in particular was the strongest underwriting performance achieved over the 10 years Gallagher Re has conducted this analysis.”

For this reason, Fitch Ratings bumped up its outlook on the global reinsurance market from ‘Neutral’ to ‘Improving.’

Andy Taylor, president of Gore Mutual Reinsurance, predicted reinsurance rate increases were still in the cards for the Jan. 1, 2024, renewal season, albeit not as intense.

“We definitely saw the rate correction last year in the reinsurance market, so much higher retentions, higher costs,” Taylor said. “I just came this morning from a round of meetings with reinsurers in Mississauga [about next year]. I agree [the reinsurance market] is stable, but still maybe double-digit increases next year; not as dramatic as last year.”

Canadian Cat losses, particularly wildfires and flooding damage, affected all regions of Canada in 2023, meaning there was “nowhere to hide” for smaller, regional carriers, Taylor said. Companies with business concentrated in only a few, select geographic areas weren’t immune to reinsurance rate increases.

Louis Gagnon, president and CEO of Intact Insurance, said two obstacles remain for global reinsurers’ profitability. One is currency exchange rates. The other is cyber exposure.

“There are two elements I think people do not realize,” Gagnon said. “A good proportion of the reinsurance money comes from Europe, comes from the U.K., and most of the demand for the insurance is in U.S. dollars. And the U.S. dollar has really popped up. That means lots of pressure on the insurer…. Just the exchange rate has a big impact on reinsurance costs.

“The second thing is now we have a new risk out there, cyber risk. And when you look at the entire reinsurance market, most of the reinsurance market and capacity has been aligned to protect against natural catastrophe. And now we have cyber…becoming a very important risk — one that is difficult to get into again. Lots pressure on the insurance going forward.”

Feature image courtesy of iStock.com/rudall30