Property cat hit rate adequacy, but any old storm could do its worst: RenRe

Property cat rates may be fully adequate today, but any old storm on the US coast could push a jittery market towards a fresh bout of hardening,  RenaissanceRe CEO Kevin O’Donnell (pictured) is telling markets.

“We believe the property cat market is now broadly price adequate,” O’Donnell told his company’s second quarter earnings call. RenaissanceRe believes it has loss cost drivers like inflation and climate change already factored in, but such require “careful monitoring.”

Demand from admitted carriers in stressed US jurisdictions was largely capped at the mid-year renewals, O’Donnell claimed.

Some carriers had reduced their exposures, which in Florida pushes business to the state residual carrier Citizens that cedes a smaller percentage of its exposure than the private market. Florida carriers could also lean on a new state reinsurance programme RAP.

The H1 2023 storm of cat bond issuance has also done its part to tame carrier demand for traditional reinsurance coverage, at least at the higher programme layers, O’Donnell noted. RenaissanceRe brushes off that threat on assumption that a move to ILS “plays to one of our unique strengths.”

But the seemingly bigger dampener came just from the weakened buying power of admitted market cedents who have been unable to get prices past regulators that might balance the pressure from inflation compounding the post-pandemic rebound in frequency.

The demand gap should prove temporary as carriers recoup pricing power, O’Donnell said. Spillover into the E&S market should, “over time,” help plug the gap in rate-adequate business, he believes.

All else being equal, hard rates should hold. “If the market went and renewed as expiring,” O’Donnell said, “the market [pricing] would largely be adequate for 2024.”

But all need not be equal and a slate of market players jittery from six years of losses could run scared at the first sign of trouble. Virtually any tropical storm on US shores would push the market back into further hardening, O’Donnell believes.

“Any storm of reasonable size is going to unsettle the market,” O’Donnell told analysts on the call.

“The market is enjoying the benefits of the hard work that we've achieved to bring rate adequacy,” he said. “There is still a sense of expectation that results need to be achieved for the market to fully believe that this is fully adequate.”

Another “Ian-type” storm would render a reaction “at least as strong as it was last year,” albeit perhaps not into a market capable of supported the same degree of rate increase.

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