Analysts at J.P.Morgan believe that reinsurance pricing has reverted back to 2023 levels, which was the beginning of recent market hardening.Data suggests the catastrophe bond market has softened a little more, or ahead of the traditional market’s pace, being closer to 2022 levels at this time.The reinsurance market softened somewhat at the January renewals this year, as abundant capacity and elevated competition drove rates for both reinsurance and retrocessional lower.

, with global property reinsurance rates down 6.6% and US rates falling 6.2% at the 1/1 renewals.Meanwhile, that risk-adjusted pricing for property catastrophe treaty business declined by 8%, while retrocession pricing fell further by 13.5% at January 1st 2025.Capital across the reinsurance sector had been building over the last two years, as traditional reinsurers earned high-profits and insurance-linked securities (ILS) strategies generated record returns, helped by lower levels of catastrophes, plus the reinsurance reset in terms, conditions, attachments and pricing.

At the April 1 2025 renewals, reinsurance rates softened again, with .Howden Re said Japanese property catastrophe excess-of-loss renewals saw .Gallagher Re said pricing outcomes were varied for US renewals at April, largely dependent on loss experience, with .

Now, with the mid-year renewals underway and fast approaching with Florida property catastrophe reinsurance largely renewing by June 1st, while other US regions, nationwide and also countries such as Australia renewing for July 1st, thoughts turn to where the trajectory of rates are heading.Early Florida and US renewals are already seeing rate pressure, with recent commentary from the end of last week providing a few hints., despite the carrier buying meaningful additional limit higher-up, indicative of greater softening in higher reinsurance layers.

While the CFO of Florida Citizens said that the expectation for Florida catastrophe reinsurance renewals is that .Plus, .With all that backdrop in mind, let’s see what the J.P.

Morgan analyst team has to say.The analysts note that they agree with management teams who say that “even with falling pricing seen in early 2025, prices in commercial lines and reinsurance remain well above adequate levels.” They further explain, “With the price reductions seen so far, we estimate that pricing is now back to 2022/23 levels in commercial lines globally, with the US not far off the 2024 level.“In reinsurance, we believe that prices are almost on par with the levels seen in 2023, which was a watershed positive moment for pricing for the sub-sector.” While prices may be falling it takes time for that to translate into falling margins, the JPM analyst team explain, saying that some firms can absorb falling prices for a couple of years, but a decline in top-line growth through lower premiums will become more evident so “margins will eventually be squeezed.” The positive price cycle has lasted much longer than most hard markets, the analysts also note, with the industry having faced multiple challenges over the period from inflation, losses, COVID, and low interest rates up to 2022.

With reinsurance pricing estimated to be back at 2023 levels, it might suggest some of the recent hard market gains have been lost.Certainly any excess gains from the last year or so have softened away.But, remember that in tandem with rising reinsurance rates through 2023 and 2024, the attachment points of the industry were also set higher, while other terms and conditions toughened and aggregate coverage became less available.

These stricter contract terms of coverage and the higher attachments, so greater retentions for buyers, remain in-force today and are relatively unchanged since the hard market began.In fact, some renewals completed this year have shown attachments rising further still, as cedents prioritise buying cover higher-up, to ensure their reinsurance towers are less likely to be blown through in the event of major losses.Which means that, on a risk-adjusted basis, pricing still remains much higher than it was back prior to 2023, although as ever that is hard to precisely quantify.

The JPM analysts note that management teams seem quite relaxed about recent softening, as “Prices may be reducing but they remain strong in terms of rate adequacy.” “We would not disagree with this view that even with the fall in pricing seen in early 2025, prices in commercial lines and reinsurance remain well above adequate levels and in a normal year should lead to strong returns,” the analysts explained.The analysts also stated, “Price reductions rarely stop without some sort of cause,” but added that, “Given returns, we think that the market remains far from poor industry profitability.” However, one other statement in the JPM analyst report also raises some memories of soft market periods of the past, where they said, “The pricing cycle continues and we have seen management teams chasing growth at a time when prices are beginning to reduce.This sort of behaviour typically exacerbates the pricing cycle, with steeper declines seen from what are considered healthy levels of pricing.” Which is precisely what was seen through the early 2010’s, the period when the traditional market sought often cited the growth of catastrophe bonds and insurance-linked securities (ILS) as the cause of softening in the market, but at the same time the world’s largest reinsurers were chasing premium volume and driving down rate in peak-peril catastrophe zones, to maximise expansion before profitability of new underwriting business waned.

Which is perhaps really what drove us to the softness of 2016/17.One of the features of the capital markets activity in reinsurance is that sometimes ILS instruments soften earlier, or faster, than traditional reinsurance and retrocession.The fact cat bonds and ILS trade throughout the year and aren’t restricted to renewal seasons means that it can often seem like the catastrophe bond market is front-running rates down.

Although perhaps it is better to think of it as a predictor of future rates.Right now, data we collect suggests the catastrophe bond market has seen its pricing soften back to levels a bit before 2023, so perhaps running a little ahead of traditional reinsurance again.So far in 2025, based on new cat bond deals settled to-date, the average spread above expected loss for the year is at the lowest level since 2021.

However, it’s important to note that the average expected loss across issuances has also fallen slightly, so looking at the multiple-at-market of cat bond issuance is also helpful..Worth noting that it’s only slightly down on 2024 at this time, although the trend is clear.

But, the higher attachments and stricter terms for deploying capital for protection remain in-force in the catastrophe bond market as well.So on a risk-adjusted basis pricing remains higher-still than years prior to the reinsurance reset and there seems no desire to loosen terms or bring cat bonds further down the tower (without adequate compensation) at this time, showing cat bond fund managers and investors remain disciplined and focused on achieving what they see as risk-commensurate returns.Remember though, that the cat bond market is currently issuing bonds that are providers of mid-year reinsurance renewal capacity, so again perhaps this is just a predictor rather than a driver of softening given the front-loaded nature of the cat bond market this year.

Recall that, as we’ve said many times before, there are perils and layers of the reinsurance capital stack where cat bonds and other ILS can be very efficient, given the low-costs of capital large institutional investors operate with and the value they place on these diversifying return opportunities.Which raises the question again of whether traditional reinsurers should be more prepared to lean in to this and leverage the appetite of cat bond and ILS investors to their benefit, rather than compete against it? Could that result in a more sustainable rate environment, growing the cat bond market to become an even more core source of higher-layer protection? Or, for the traditional market, is the fear of relinquishing more of their control and share of certain layers of the risk tower just too strong and will competition ensue like we saw in the 2010’s? Relinquishing parts of the capital stack where institutional funding might be more efficient than their own balance-sheets, while balance-sheet capital may be more profitably and productively put to work on growth opportunities elsewhere, is surely a decent trade-off? Questions worth asking as market conditions evolve.As ever, finding market-balance between reinsurance risk transfer instruments and sources of capital for property catastrophe risks appears key to maintaining adequate returns again.

Companies that do this effectively may stand best-positioned at this time.How sustained this period of softening will be, or whether it is just a reset on top of the reset is not yet clear..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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