Gallagher Re at 1/1: ‘tense’ casualty negotiations put onus on data; prop cat competition ‘responsible’

Gallagher Re has issued its appraisal of the 1/1 reinsurance renewals, highlighting risk-adjusted reductions in price “across the board” in property catastrophe and specialty business.

This was contrasted with a tense renewal for casualty business, the reinsurance broker acknowledged.

Gallagher Re emphasised that reinsurers had benefitted from two prior years of elevated pricing, while cedants had also raised their own pricing at primary insurance level, putting reinsurers and the wider insurance industry in good stead.

Globally, reinsurers are expected to achieve a combined ratio near or below 90% and a low teens return on equity (ROE) for 2024, according to Gallagher Re.

The broker said that improved operating and performance ratios, along with stronger balance sheets, have boosted reinsurers’ confidence to take on more risk and pursue growth.

“The market was competitive but disciplined, meaning there were lines of business, particularly short tail lines, such as property cat and specialty lines, that reinsurers had earmarked for growth, and that is what generally transpired in the market,” said Chirag Shah (pictured), executive vice president, Gallagher Re, speaking with GR.

“The most tense area in negotiations was around US casualty. The challenges and the complications in the US casualty space were manifested in renewal negotiations. There was a lot of question around, and still is, quite frankly, around the health and the profitability of the US casual market. I think that’s where we probably saw the most tension,” he added.

The “Differentiation Rewarded” title of the 1/1 report echoed comments made by Gallagher Re CEO Tom Wakefield in an interview with GR for the Monte Carlo rendezvous in September 2024, suggesting that cedants were able to secure better terms by presenting more and better data to reinsurers via their brokers, aiding underwriter confidence and, in return, securing some discount in rating.

“In areas where growth was most sought, pricing pressure peaked, resulting in reduced risk-adjusted pricing in property catastrophe and specialty, except for loss-impacted programs,” said Wakefield.

Despite some traits of soft market competitiveness, Shah characterised the renewals process as broadly consistent and responsible in the way that both sides of the transaction had approached negotiations.

“We saw more competitive tension than in previous years around reinsurers ambitions to grow in these lines of business, but there was responsibility in the way in which they went about looking to grow, so there were no major changes in structure,” Shah said.

“There was pricing pressure but no irresponsibility in the way in which reinsurers approached it. Likewise, there was consistency in the way carriers were looking to buy across most lines of business, from a structural standpoint and appetite perspective,” he added.

Gallagher Re cited for property cat “a near universal elimination of differential terms and other improvements”, such as pre-paid reinstalment provisions and enhanced event clause definitions in specific territories.

There was a “less pronounced, more significant” shift, the broker said, in the increased number of reinsurers prepared to support lower level occurrence and aggregate protections on both a structured and traditional basis for selected buyers

Casualty data differentiator

The US casualty market is experiencing tighter capacity compared to global property and specialty segments, despite improvements in the underlying market, Gallagher Re emphasised.

Demand to buy casualty is “relatively stable”, Shah thought, “already in high demand” at previous renewals.

Casualty concerns vented by some reinsurers in Monte Carlo in September “set the tone for negotiations”, he emphasised.

Primary market US casualty rates had “accelerated upwards”, he pointed out.

“The prevailing view has probably changed, but the issues raised during Monte Carlo and the conference season were very legitimate. We are seeing signs that loss trends are rising, and dynamics from the US courts remain challenging,” Shah said.

Some reinsurers, Gallagher Re’s report said, remain “hesitant” to underwrite casualty business due to strict combined ratio targets “influenced by investor focus”.

Wakefield added: “The US casualty market remains divided, with some seeing opportunities to expand amid uncertainty, while others adopt a cautious approach. The complexity across business lines and regions has enabled brokers and reinsurers to collaborate closely with buyers, enhancing alignment and risk assessment.”

The report emphasised that “well-prepared buyers achieve positive results”, underlining the point about the quality of cedant data in broker negotiations that led to renewals outcomes, something Shah emphasised.

“The real story is the pathway to get there, in terms of the amount of information that carriers needed to provide, outlining their strategy on how they’re dealing with future dynamics of loss trends and volatility, their investments, and claims dynamics,” Shah said.

“The more reinsurers could put quantitative analysis behind the strategies that carriers were articulating, the better the outcomes were for buyers,” he added.

To read the full Gallagher Re 1st view report, click here.