Even while pricing across the reinsurance market has begun to decline from its historically high levels, broking group Howden believes that the structural changes enacted during the recent hard market are likely to endure.
This becomes even more critical when the market is operating in a persistently high-risk environment, which Howden notes has the potential to intensify further.
Howden expects “persistently high attachment points” to remain a feature of the market, with insurers set to experience continued earnings volatility as a result.
This is due to the fact primary carriers will continue to absorb the majority of catastrophe losses, which the broker notes will especially be the case from perils deemed “secondary” in nature, such as severe convective storms, floods and wildfires.
Elevated attachment points has changed the shape of risk sharing between primary carriers and reinsurance capital providers, including the catastrophe bond and insurance-linked securities (ILS) market.
As we’ve reported, analysts have been saying that they anticipate strong reinsurance profits can continue to be generated as long as attachments largely hold, even as risk-adjusted reinsurance pricing declines.
Howden commented, “Whilst pricing is beginning to decline from historically high levels, structural changes introduced during the hard market are likely to endure.”
One factor that has steeled reinsurer’s resolve, when it comes to not yielding too much in terms of attachments, is the fact the world remains highly-volatile.
“The risk landscape remains unyielding. Devastating and escalating wars, commodity shocks, soaring prices, financial market instability and high debt levels have ushered in a fragmented global order with profound implications for security, commerce, investment, supply chains, and political stability,” Howden said.
Adding, “This new reality places businesses and carriers in a persistently high-risk environment, with the potential to intensify further. If 2024 will be remembered for escalating conflicts, the ‘biggest election year ever,’ and economic divergence, 2025 is poised to be shaped by policy implementation (tariffs and trade) and the emergence of new cycles.”
But this makes innovation all the more important, the broker believes.
Howden explained, “Finding innovative risk transfer solutions to sustain market growth and address protection gaps will be critical as price momentum wanes.”
The broking group further noted that, as an example, in the commercial insurance market, “rate hardening has driven virtually all premium growth since the market correction that began in 2018/19.”
Saying that, “From here, a renewed emphasis on innovation will be essential to drive the next phase.”
David Howden, Founder & CEO, Howden, commented, “Our report is something of a wake-up call for the industry. Carriers have experienced strong growth for the best part of a decade now but, as we show today, a reliance on price alone is no longer enough to sustain that momentum.
“The dawn of a new cycle presents fresh opportunity as insurers look for new business to drive growth.
“In a more volatile world, our clients are crying out for more protection in everything from cyber to renewables.
“So the stars are aligning. Greater emphasis on innovation, on collaboration and on listening to the needs of the customer will mean a win-win-win for clients, society, and insurance companies alike.”
