Reinsurance buyers adding to cat limits in 2024 – Guy Carpenter

By the start of 2024, a “healthier balance” had returned to the global property catastrophe market, according to Guy Carpenter.

Reinsurers’ recovering profitability, coupled with additional available capital, created favourable conditions for cedents to evaluate additional property catastrophe limit purchases, the reinsurance broker said.

Across geographies, demand significantly increased and reinsurers met this growing demand, placing the sector “largely in equilibrium”, according to the intermediary.

Reviewing buying activity from January through July 2024, Guy Carpenter estimated about $35-50bn of additional limit has been purchased world-wide.

This increase generally represents 5-10% of catastrophe capacity purchased, including cat bonds, depending on the region, the broker said.

“Additional demand was diversified with a significant portion of cedents buying some level of additional limit. In North America, over 60% of property catastrophe contracts included expanded limit with the top 20% purchasing in excess of $100m of additional limit,” Guy Carpenter said.

“The majority of additional capacity was provided by traditional reinsurers while insurance-linked securities (ILS) impact was primarily via catastrophe bonds and in some cases investor support of traditional reinsurers,” the broker added.

Key takeaways:

• Estimated global property catastrophe limit purchased increased $35–40bn through H1 2024, with more than 50% of increased limit originating in North America across a wide range of companies.
• Capital from traditional reinsurers, calculated using the Guy Carpenter’s reinsurer composite index, increased over $35bn by year-end 2023 versus 2022 with retained earnings a significant contributor, providing increased capacity available to fulfil increased demand.
• Reinsurer profitability improved going into 2024, incentivizing reinsurers to utilize increased levels of capital in property catastrophe.
• Risk-adjusted pricing trended down by mid-year, particularly on middle and upper layers, giving buyers greater ability to increase purchases.
• Record H1 for catastrophe bonds as investors sought opportunities to participate in improved market conditions.
• Demand is likely to remain somewhat elevated in 2025 provided pricing and capacity remain in balance.

Drivers of higher limits

Heading into 2024, significant sector corrections in pricing and attachment points drove a return to profitability in the property reinsurance sector, Guy Carpenter said.

Simultaneously, reinsurers had access to increased capital to allocate to placements, and had incentive to do so, creating an environment that was more favourable for cedents to evaluate increasing their levels of property catastrophe reinsurance, the broker said.

With minimal movement in net limits purchased over the past couple of years during more difficult market conditions, there was “material interest” in additional limit coming into 2024.

“Significant inflationary pressure grew underlying valuations and, therefore, cedents’ exposures to loss,” the broker said. “Greater market stability, and moderating pricing in a number of segments, provided cedents with better ability to budget for additional levels of coverage.”

Outlook for 2025

As the market looks ahead to 2025, Guy Carpenter said it expects there will be additional factors providing further momentum for increased demand. Key factors affecting buying decisions over the next 12 months include:

• Continued (albeit lesser) increases in property valuations;

• Growth in overall exposure;

• Model version changes; and

• Focus on continued risk mitigation.