Property reinsurance in capacity & retro clinch in 2023, WTW warns

A cut to global reinsurance capacity, compounded by a “major retreat” of retro capital, will drive property reinsurance rates up globally by anywhere from 5% to 40% depending on region and loss history, global broker  WTW has said in recent research.

“The reinsurance marketplace direction is clear: rate firming, withdrawal of capacity from catastrophe lines and many insurers having to take on more net positions than in previous years,” WTW analysts said in their report “Insurance Marketplace Realities 2023 – Property.”

The cut to capacity is acute. The global tally of dedicated reinsurance capital may have declined by $40 billion in the past year to $435 billion in 2022.

The capacity problem is one being kicked down the row:  WTW maybe looking first at what it calls a “major retrocession capital retreat” in place throughout the quarter and which “is expected to disrupt January 1 treaty renewals.”

The trend for reinsurers to mitigate by steering away from cat volatility towards a more risk-balanced portfolio will continue.

The upshot: higher rates, with notable variation by territory, occupancy, claim history and strength of trading relationship. Any account that hasn’t accommodated heavy inflation can expect an extra punitive pricing layer.

The WTW rate outlook by the numbers:

WTW now expects rates in facultative property to rise 5 to 15% depending on historical and recent loss activity.  WTW now expects “Little to no new capacity but markets remain generally stable as respects aggregate deployment.”

Property cat per occurrence will rise 5% to 20% for loss-free accounts and 20-40% for loss impacted as capacity exits the market.  WTW cites reinsurers unwilling to do deals at market terms and “overall lack of capacity to fill programs at any price.”

Aggregate property cat could be up 10 to 20% for loss free and 20 to 40% or more for loss impacted accounts. Expiring capacity “will continue to be tough to renew” and even best-in-class clients are seeing aggregate limits shrink, WTW says.

Non-cat property is “the most stable” element of the market, but continues to harden with rate hikes of 5-10% for loss free and 10 to 25% for loss impacts.

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