Property rates to rise, terms to tighten, says II survey

The property reinsurance market is undergoing substantial changes, driven by evolving risks and economic pressures. That was the core sentiment that came from respondents to Intelligent Insurer’s pre-Baden-Baden 2024 survey.

As the industry faces increasing challenges from climate change, inflation, and a growing frequency of catastrophic events, reinsurers are adjusting their strategies around rates, terms, and attachment points. 

Survey participants overwhelmingly pointed to property as an area ripe for significant shifts in 2024.

The message from respondents is clear: property reinsurance rates are continuing on an upward trajectory.

“We’ve seen too many high-cost events to ignore the necessity for rate adjustments.”

Some 80 percent of survey participants agreed that rates would continue to increase, driven by inflation and the growing severity of natural catastrophes.

One industry leader commented: “We’ve seen too many high-cost events to ignore the necessity for rate adjustments. Catastrophic losses are becoming more frequent, and we have no choice but to price risk accordingly. This means pushing rates higher across most property programmes.”

Another wrote: “A sharp increase in rates will engage ceding companies in innovation and prevention actions with clients, and will bring capital into the reinsurance field.” 

Respondents indicated that inflation was having a compounding effect on these rate hikes, with reinsurers contending with increased costs in construction, labour, and materials, which are driving up claims expenses and prompting a reassessment of pricing models.

“As inflation rises, so do the costs of rebuilding,” one respondent noted. “We’re seeing claims values skyrocket, especially in catastrophe-hit areas, and our rates need to reflect that new reality.”

Stricter T&Cs the norm 

Alongside rising rates, many reinsurers are tightening terms and conditions (T&Cs), with 55 percent of survey participants expecting small changes in the coming year. 

Reinsurers appear to be re-evaluating what they are willing to cover, with an eye towards minimising exposures in high-risk regions.

“We’re no longer in an era where broad, catch-all coverage works for property programmes,” one respondent said. 

“The frequency of major natural events has forced us to rethink how we structure our contracts. We need to be more precise, introducing stricter exclusions and tighter limits.”

Another respondent added: “In regions with a high density of catastrophe events, we are pulling back capacity. It’s no longer just about higher rates; we need more robust policy language to ensure we’re covering only the risks we can manage.”

Attachment points—the level at which reinsurance coverage kicks in—are also expected to tighten, with reinsurers aiming to reduce their exposure to smaller, more frequent losses.

“We’re pushing attachment points higher to focus on the more significant, less frequent events,” explained a respondent. “The days of reinsurers covering every minor loss are over, especially with the unpredictable nature of today’s catastrophe risks.”

This strategy aligns with reinsurers’ desire to manage volatility, especially in regions prone to frequent natural disasters. By raising attachment points, reinsurers are effectively telling primary insurers to shoulder a larger share of the losses before reinsurance takes effect.

“The higher attachment points are a necessity now,” said another respondent. “With the number of smaller events escalating, we’re taking steps to protect ourselves from being bogged down by frequency losses. It’s a way to maintain profitability in a challenging market.”

As the industry navigates this rapidly evolving landscape, reinsurers are preparing for a 2024 renewal season marked by more aggressive pricing and stricter underwriting, with an overall consensus that rates and attachment points will both rise, while terms and conditions will tighten.

One respondent summed up the mood: “Reinsurers are recalibrating to reflect a world where catastrophe risks are more frequent and severe. It’s not just about raising rates; it’s about fundamentally rethinking how we structure coverage and manage risk.”

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.