Gallager Re expects 2024 returns from cat bonds “to further stimulate targeted investment” in ILS during 2025, as investor demand for collateralised reinsurance deals is also set to increase.
The broker’s 1st View reinsurance renewal report said that, over time, investors’ interest in collateralised reinsurance deals would increase “if bond rates become further decoupled from traditional rates”.
Bond sponsors achieved reduced spreads and increased deals sizes during Q4, the broker noted.
While hurricanes Helene and Milton “did prompt some investor wariness about flood peril”, cat activity in 2024 was not expected to discourage further fundraising in cat bond strategies.
“Capital supply remained very strong, with some ILS fund managers raising capital and more investors coming into the space,” at the 1 January renewal, Gallagher Re said.
Investor returns from cat bonds in 2024 were set to be “nearly as much as 2023”, when cat bonds were the highest yielding hedge fund strategy, returning around 20%.
The broker noted returning investor demand for collateralised re, alongside rising interest in casualty risks.
“We have witnessed increasing efforts to expand solutions outside of cat bonds and property-related collateralised reinsurance, such as the development of casualty sidecars,” it said.
New rated start-up capital of around $1bn for 1 January was “modest”, the broker added.
In the retro space, increased supply of capacity ahead of 1 January shifted market dynamics in favour of buyers.
Demand for retro was broadly stable, following an increase in purchasing throughout 2024.
However, the dynamic “was nuanced by buyer”, the broker said. Some buyers reduced orders for ultimate net loss (UNL) coverage, owing to strengthened balance sheets from retained earnings, or increased quota share cessions.
Others purchased more retro to support underlying growth, favouring UNL limit over ILWs.
Supply was bolstered by strong 2024 returns and reinsurers’ growth ambitions. There was increased appetite from existing players, and new inflows to ILS and rated carriers through quota shares and sidecars.
“Earlier fears of the potential trapping of collateralised limit from Hurricane Milton on lower-attaching occurrence and aggregate layers quickly diminished, with a limited impact to supply,” Gallagher Re’s report said.
Retro market conditions softened throughout December, with a significant amount of limit transacted in the final two weeks of the year, in what was “a very late renewal process,” it added.
Improved operating performance and stronger balance sheets “boosted reinsurers’ confidence” heading into 1 January renewals and expanded capacity, according to Gallagher Re.
The increased 1 January confidence was aided by numerous factors set in motion during 2023 renewals, including higher reinsurance prices, stricter terms and a reset in property catastrophe attachment points.
Risk repricing has also contributed to optimistic outlooks, coupled with an elevated interest rate environment.
CEO Tom Wakefield said in the report that 1 January renewal reinsurance supply “generally exceeded demand”, and that key trading relationships “remained strong”.
Complexities by line of business and territory gave brokers and reinsurers the opportunity to work in “much more detail” with buyers and allowed reinsurers to assess risk and client relationships “on [their] own merit”.
“Negotiations and the resultant outcomes were largely conducted with an increased granularity of data both in terms of quality and amount,” Wakefield said.
In a separate interview with this publication to coincide with the report, the CEO said that there was still room for reinsurers to “do more to move towards our clients” as conditions remain much stronger than in 2022.
Property continues to benefit from healthier market dynamics
Property pricing moderated down on average while premium trended up on exposure growth, the broker said. The top end of excess loss towers experienced the steepest competition as reinsurers looked to mitigate loss frequency.
“Global property renewals were largely orderly,” the report said, with clients benefiting from the “continuation of healthier market dynamics supporting a sufficient supply of capacity”.
Reinsurers demonstrated a desire to grow with core clients and select new partners in the US, with demand remaining largely steady as growth, inflation and costs were more in balance. Buyers sought some coverage they were priced out of last year, such as aggregate coverage towards the top of programs.
In per-risk outcomes, Gallagher Re said continued concerns around frequency-driven loss activity constrained per-risk US supply despite positive rate movements in the past few years.
In Europe, the Middle East and Africa, property cat supply “remained robust”, with an increased appetite from existing and new players that reflected adequate pricing.
Historically high rates led to a few new entrants emerging in per-risk, helping cedants maintain existing structures, which allowed stability despite discussions around strike, riot and civil commotion.
Many cedants brought their books to market early this year after late renewals for 1 January 2023, and a number investigated potential additional limit purchases – Turkey being a particular focus.
In Asia Pacific, property reinsurance protections moved to a more affordable level, which reflected cedants’ own premium and exposure growth.
In the UK, cat demand continued to shrink amid sustained M&A activity, which resulted in greater competition for cedant books.
The UK had an average year for risk loss, with the largest event being water damage to a construction loss.
Detailed underwriting and claims strategies win in casualty
Casualty reinsurance buyers that provided reinsurers with “clear, data-driven” analysis of their underwriting and claim strategy achieved the best outcomes, most importantly by obtaining preferred capacity allocation treatment.
This is particularly true in the US, where there are concerns around underlying profitability and loss trends particularly related to accident years 2021 through 2023.
“This year, we reached a level of intense underwriting scrutiny not seen for several decades,” the report said.
“Reinsurers had a laser focus on loss trends, actions taken by buyers to improve the future profitability of their portfolio from an underwriting, reserving, and claims management perspective, and how they were quantifying that improvement.”
Overall, US capacity was stable as some reinsurers grew programs while others cut back, in line with their varied expectations for the sector in 2025. Structures and cessions remained largely stable, Gallagher Re said.
Meanwhile, a continued push by US carriers on rates also helped keep renewals relatively orderly, as reinsurers remain confident in the rate environment. This is particularly true in umbrella and excess but also primary lines, the broker said.
Retro: Signs of stabilisation
After 18 months of contraction of counterparties offering cover and an increase in execution risk, the retrospective market showed signs of stabilisation in the second half of 2024, Gallagher Re said.
Inflationary pressure on loss reserves remained a material concern, resulting in reinsurer price discipline remaining high.
Two mega deals were confirmed in 2024 worth close to $4bn, though the total number of transactions closed last year was expected to fall below the recent peak years of 2019-2022.
Gallagher Re estimated around 30 deals representing about $6bn-$7bn in reserve volume were completed in 2024.