The specialty re/insurance market may be starting to soften, but the inflection point into a full soft market remains two to three years away, according to a new report from Peel Hunt.
As part of a recent Lloyd’s market tour, Peel Hunt analysts held discussions with both insurance and reinsurance underwriters, focusing on rate adequacy, cycle management, and strategic positioning ahead of a potential downturn. Their findings suggest that while there are early indicators of softening in some lines, underwriting discipline and technical margins remain broadly intact across the market.
“We are 2-3 years away from being in the throes of a soft market, with 2025 underwriting margins still earning through the attractive rates written in 2023/24, and 2026 earning through very adequate rates written in 2025,” the analysts wrote.
The analysts also added: “All underwriters reiterated that Specialty (re)insurance rates remain adequate on average across the portfolio. However, there are a number of warning signs emerging.
“All teams we met did not dispute that Specialty (re)insurance remains a cyclical market, and that rates were likely to be on a downward trajectory from here.”
Peel Hunt also noted that the underwriters they met with suggest that the floor of the next downcycle is likely to be higher than the previous trough. According to the analysts this is primarily due to the higher-risk environment, particularly within the property catastrophe market, and lingering uncertainty around claims inflation, particularly in casualty classes.
“It is becoming harder to grow organically as the year progresses. However, there remain pockets of opportunity (eg Environmental Liability), as not all classes soften at the same pace, whilst a number of areas have already been softening for a while and at some point need to reset (eg Cyber, Aviation),” the analysts further explained.
Adding: “Property catastrophe lines remain very attractive at current rate levels, despite signs of high single-/low double-digit rate declines so far this year (Florida renewals down c.10% was not particularly disputed), whilst the broader Casualty market seems stable.”
Furthermore, Peel Hunt also highlighted that the underwriting management teams they met are better positioned to navigate the coming cycle than in prior iterations. Portfolios are more diversified, reserve buffers have been rebuilt, and there is a clear intention to actively manage capital and exposure as market conditions shift.
All carriers confirmed they would be prepared to reduce their Lloyd’s and reinsurance exposures if softening accelerates, while deploying outwards reinsurance (both quota share and excess-of-loss) to protect net margins and reduce volatility. In parallel, companies are expected to increase capital return measures, such as special dividends and share buybacks, to maintain investor discipline.
The analysts also noted that some meetings voiced concerns about the increase in broker facilities and the (smart) follow market, as well as the number of new MGAs/MGUs being created.
However, Peel Hunt stated that “so far this is not hurting rate adequacy”
Peel Hunt’s current modelling already incorporates a soft market scenario beginning this year and extending through 2028. At this stage, the rate of softening remains in line with expectations, and the analysts remain constructive on the sector’s near- and medium-term prospects.
“Meanwhile, we believe the cash and capital generation will be very attractive in the medium term, given the healthy rate adequacy we are seeing today,” the analysts concluded.
