Fitch Ratings forecasts that property catastrophe reinsurance renewal rate increases will decelerate in 2024, with an average increase expected to be below 10% at the January renewal season.
Because of this, Fitch says that improvements in underwriting margins will likely be less significant than in 2023, but still those margins are going to be supported well through 2024, by the higher reinsurance pricing and improved terms and conditions on property catastrophe business.
Normalised for major losses, Fitch believes that reinsurer margins are set to peak next year, although traditional reinsurance firms still stand to benefit from improved investment returns as well.
“Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024, and is maintaining its improving fundamental sector outlook,” the rating agency explained.
Which all implies that spreads in the insurance-linked securities (ILS) space may have peaked, but that returns and yields are set to remain elevated, with additional rate increases possible in collateralised property catastrophe reinsurance business renewals.
The rating agency isn’t anticipating much change to reinsurer appetites for risk in 2024, so expects that changes to attachment points will remain, while the appetite for aggregate reinsurance is not expected to increase much, if at all.
“We do not expect this to change much in 2024 as reinsurers’ appetite for lower layers of property catastrophe risk remains limited,” Fitch said.
Price increases for property catastrophe reinsurance are likely to be highest in the most loss-exposed regions of the world at the January 2024 renewals, Fitch believes, but overall capacity is expected to be sufficient.
The rating agency said, “Fitch believes reinsurance and retrocession capacity for higher layers of property catastrophe risk should be sufficient to meet demand in 2024.
“Traditional reinsurers’ have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover.
“This should result in less upward pressure on prices than during the January 2023 renewals.”
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