Bridging the gap…

While not exactly a drawing of battle lines, most reinsurers are making their position clear on maintaining retentions and first-layer attachment points ahead of what is expected to be a relatively stable property catastrophe renewal season.

At the Monte Carlo Rendez-Vous last month, senior management were keen to quickly counter attempts by reinsurance brokers to paint a picture of reinsurers walking away from risk and of a sector that risks becoming irrelevant.

Intermediaries are of course just doing their job in advocating for their clients, and in one sense they have a point. The pain point for cedants again this year is the level of small to mid-sized cat losses that they are taking net because of retentions that were pushed up across the board back in 2023.

The first half of 2024 has been the second-costliest on record for US severe convective storms, with the peril accounting for over 61 percent of the $61bn insured nat cat losses for the period, according to Gallagher Re.

Meanwhile, reinsurers are making stellar returns on their cat books, insulated from the frequency losses that are hitting insurer earnings and in some cases balance sheets.

And the Atlantic hurricane season has so far proved largely benign for reinsurers too. Hurricane Helene – despite making landfall at Category 4 strength with a huge footprint – is not expected to be a major ceded loss, which means the path towards a moderately softening 1 January property treaty renewal looks set.

Reinsurers are almost universally arguing that it is not their role to assume the risk of frequency losses that in their view are not adequately priced. They are instead in the business of protecting balance sheets, they say.

But with the Swiss Re Institute stating recently that the protection gap is still widening after reaching a record $1.83trn last year on a global basis, the industry clearly needs to find ways of providing affordable solutions for those that are not currently willing or able to transfer risk.

Reinsurers would say that primary insurers need to do a better job of pricing the risk adequately. In an election year where neither side of the divide has been positive towards the insurance industry, it seems unlikely that legislators and regulators will make it easier for admitted carriers to do that – and indeed scrutiny may grow into the E&S sector.

The issue is likely to again be top of mind in discussions during the upcoming renewal season…