Calm before the firestorm
January renewals concluded on an orderly note, but the LA disaster will give (re)insurers plenty to think about before mid-year
By Bernice Han
The January reinsurance renewals are often a reliable indicator for Australian insurers preparing for their own mid-year catastrophe treaty negotiations – but this time, the picture may be hazier due to the Los Angeles wildfires.
Before the disaster in California, the January renewals for US and European insurers – which typically renegotiate their programs about the start of the year – suggested a favourable environment for most Australian reinsurance buyers, whose property catastrophe accounts usually renew at June 1 or July 1.
Reinsurance broker Gallagher Re says January global property renewals were largely orderly.
“Pricing moderated down on average … as clients benefited from the continuation of healthier market dynamics supporting a sufficient supply of capacity,” it says in a report.
The report says in the US, reinsurers demonstrated a desire to grow with their core clients, while buyer demand held steady. In Europe, capacity was ample amid increasing appetite from old and new reinsurance providers. It notes most incumbents were eager to defend their market share.
A warning sign in Malibu after wildfires swept through the community in January. Credit: LA County/Lindsey Best
In the Asia-Pacific region, the report says, the market has experienced a “significant shift in buyers’ favour as they have grasped the opportunity to realign the cost of their reinsurance protections to a more affordable level, taking into account their own premium and exposure growth.
“Compounding the challenge for reinsurers has been the limited demand from primary companies for increased limits at a time when many reinsurers are looking for growth in view of their commitments to increase their Asian portfolios.
“The forthcoming April renewals in Japan, which is the largest of all the Asia-Pacific markets, will provide a more meaningful test of reinsurers’ ability to balance their desire for growth against maintaining the current attractive rating levels.”
On Australia, the report says reinsurance capital remained plentiful for property catastrophe programs and some reinsurers looked to increase capacity with chosen buyers, to hit their budget targets.
“Reinsurers sought to hold the line on any price decreases, but reductions were achieved after a loss-free 2024 in both Australia and New Zealand. Those buyers able to successfully differentiate themselves achieved significant risk-adjusted savings.”
With the mid-year renewals season looming, the Los Angeles fires will no doubt weigh on the minds of reinsurance buyers in Australia.
Industry players are still assessing the impacts of the catastrophe, which Moody’s RMS Event Response has described as the “most destructive and multifaceted wildfire” in US history.
Moody’s preliminary assessment is for insured losses of $US20-$US30 billion.
Howden Re says as a standalone event, the fires are unlikely to cause large reinsurance losses at the global level.
“While the loss is notable, it is unlikely sufficient to shift renewal dynamics,” the reinsurance broker’s head of strategic advisory and industry analysis David Flandro tells Insurance News.
However, the fires show that perils previously categorised as “secondary” are no longer that, and the gaps between insured and economic losses are growing, he says.
“Going forward, the event will certainly shift the way (re)insurers write, model or assess exposure to perils like wildfire, and (re)insurers will need to collaborate with governments and capital providers to close protection gaps.”
Howden’s assessment of the January renewals says there was “notable softening overall, reflecting strong price adequacy and reinsurers’ ambitions for growth”. In the property catastrophe line, insurers secured rate cuts.
“Pricing in the property market saw meaningful reductions from last year’s corresponding renewal, with loss-free risk-adjusted rate change typically falling within a range of down 5% to down 15%.”
Aon sees similar trends. The global broker says hurricanes Helene and
Milton, while significant, were not of a magnitude to reduce reinsurer appetite for property covers in January.
“Ample capacity resulted in risk-adjusted price reductions, with reinsurers demonstrating increased flexibility and a willingness to meet the needs of individual insurers,” the broker says in a report.
“Some clients saw opportunity in this market, which led them to purchase higher limits and/or additional natural catastrophe frequency protection, including aggregate and subsequent event covers.”
Over the past two years, insurers have retained nearly 90% of global catastrophe losses, according to Aon analysis.
“As such, the impact of catastrophe losses on [January] renewals was localised.”
Reinsurance broker Guy Carpenter says non-loss-impacted property catastrophe renewals recorded risk-adjusted rate reductions of 5%-15% at January 1.
“Property catastrophe renewals were consistently oversubscribed as reinsurer appetite increased by 10% to 15%, while we estimate demand only increased by approximately 5%.”
