By the start of 2024, a healthier balance had returned to the global property catastrophe market, said Guy Carpenter in its mid-year 2024 Market Insights Update. Reinsurers’ recovering profitability, coupled with additional available capital, created favourable conditions for cedants to evaluate additional property catastrophe limit purchases. Across geographies, demand significantly increased, and reinsurers met this growing demand, placing the sector largely in equilibrium.
Reviewing buying activity from January through July 2024, Guy Carpenter estimated approximately $35bn to $40bn of additional limit has been purchased world-wide. This increase generally represents 5% to 10% of catastrophe capacity purchased, including CAT bonds, depending on the region. Additional demand was diversified with a significant portion of cedants 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. The majority of additional capacity was provided by traditional reinsurers while insurance-linked securities impact was primarily via catastrophe bonds and in some cases investor support of traditional reinsurers.
Drivers facilitating additional limits purchased
Heading into 2024, significant sector corrections in pricing and attachment points drove a return to profitability in the property reinsurance sector, said the Update. 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 cedants to evaluate increasing their levels of property catastrophe reinsurance.
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. Greater market stability, and moderating pricing in a number of segments, provided cedants with better ability to budget for additional levels of coverage.
Outlook for 2025
As the market looks ahead to 2025, Guy Carpenter 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. M