At the Monte Carlo Rendez-vous event there was little talk among reinsurance companies about pulling back on property catastrophe underwriting but there was an expectation of some more flexibility being given to cedents, equity analysts at Peel Hunt have reported.But despite the expectation of a competitive renewal season ahead, the analysts believe reinsurers are “drawing a firm line against lowering attachment points.” With expectations running high that , while retrocession may fall slightly faster, the consensus is that it would take a very major loss event (or other market disruption) now for the trajectory of rates to be changed.However, Peel Hunt says that the feeling they came away from the RVS with was that reinsurers are prepared to offer some flexibility to their clients this year.Carriers offered little push-back to broker views that property cat rates could fall by up to 10%, although they did qualify that in some cases by saying this would only be for loss free programmes.

Retro rates are likely to fall a little faster, the analysts believe, “enabling carriers to hedge some of the impact of a softening market on a net basis.” They added, “There was very little talk around pulling back from property catastrophe lines, with reinsurance carriers citing increased demand and inflationary pressures pushing up limits.Whether exposure growth will be able to offset the decline in rates remains to be seen.The carriers we spoke to did not suggest any meaningful premium growth in property catastrophe reinsurance lines.” The feeling seems to be that capital growth is largely still contained in the traditional sector, as well as in catastrophe bonds, so with a focus on higher-layer opportunities at this time.

“Despite some talk of fresh collateralised deals, activity remains limited,” the analysts said.As a result, the Peel Hunt analyst team believe there is an incentive for traditional reinsurance firms to remain disciplined, at this time, “suggesting a gliding path of rate declines.” There was little talk of reinsurers de-risking from property cat, but equally little talk of substantial growth.While there was nothing specific on terms for the renewals, the feeling is that some flexibility will be offered to reinsurance cedents, but this may be on a quid pro quo basis where greater shares are given, the analysts suggest.

Importantly though, attachment points are thought likely to remain firm, with the analysts saying, “Reinsurers are drawing a firm line against lowering attachment points (broadly set at a 1-in-10-year insured industry loss) across traditional property catastrophe excess-of-loss (XL) programmes.” Adding that reinsurers argue that, “the increase in attachment points pushed through during the dislocated market in 2023 remains justified.The reinsurance industry’s core business model is to provide cedents (insurers) with capital rather than earnings protection, and there are no plans to change this within the traditional XL product offering.” Brokers are expected to push for more earnings protection to be provided to help their clients, but the analysts said this may come at a price and it remains to be seen if it is financially attractive.“Therefore, any return to providing earnings protection would likely be structured separately, with a different product offering (such as wider availability of aggregate covers), rather than within traditional reinsurance programmes,” the Peel Hunt team explained.

On aggregate protection specifically they said, “Overall, we believe some flexibility is emerging as reinsurers consider ways to address cedents’ concerns.Reinsurers seem willing to expand aggregate covers selectively across cedents, but it remains unclear what form this will take.In our view, a lowering of attachment points on traditional programmes is unlikely.” All of which suggests that while stalls were set out in Monte Carlo, there was not sufficient insight available to define the trajectory for the reinsurance renewals yet.

That may come at the Baden Baden event and beyond, as negotiations become more meaningful and it could also imply a potentially later renewal where terms and price are not fully clear until closer to the year-end in 2025..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.