The reinsurance market is showing signs of returning to normalcy, with rates for reinsurance catastrophe coverage stabilizing during the Jan. 1, 2024 treaty renewals, according to a recent analysis by broker Lockton Cos. LLC. However, higher property insurance rates are expected to persist in the first half of 2024, the broker stated.
The report indicates that abundant capacity has led to a flattening of rates for reinsurance catastrophe coverage. This is largely due to reinsurers generating significant profits over the last 12 months, reaching a point of comfort with attachment points and pricing for catastrophe coverage by the end of 2023.
In contrast, capacity is limited in the more difficult risk market, primarily due to the highly individualized nature of the coverage being placed. Despite improving conditions in the reinsurance market, property insurance rates are still rising for the majority of buyers, particularly those with significant catastrophe exposures, recent losses, or difficult occupancies.
The report also highlights that primary property insurers are retaining more risk today than they did two years ago, and are likely to pass on these increased loss costs to retail insurance buyers. This is a crucial consideration as insurers continue to raise primary rates overall, albeit at a slower pace than in 2023.
“Insurers remain concerned about catastrophe losses, including many that stem from so-called secondary perils, such as wildfires and convective storms,” the report states. In 2023, 28 separate weather events resulted in total economic losses of $1 billion or more each in the United States, marking the highest number of billion-dollar events recorded in a calendar year.
Meanwhile, the U.S. Federal Reserve has made progress in reining in headline inflation, which slowed to 3.1% year over year in January 2024. The cost of construction materials has also declined in recent months, with prices for lumber and wood products falling 9.2% from December 2022 to December 2023.
The report concludes with recommendations for buyers, including reevaluating their organization’s appetite for risk and volatility, engaging their broker’s analytics team, starting renewal processes early, and leveraging full relationships with individual insurers.
Read the full report on Lockton’s website. &
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