What’s in Store for Reinsurance Jan. 1? Market Players Have Varied Views

More than half of reinsurers, insurers, and brokers surveyed last month by Fitch Ratings expect reinsurance prices to increase on Jan. 1, 2025, with 30% expecting increases of more than 5% and 26% expecting less than 5%.

“Only 22% of respondents thought prices would fall, but Fitch shares their view,” said the ratings firm. “We believe the pricing cycle has most likely passed its peak, and we expect a softer market in 2025 due to the sector’s abundance of capital.”

The January reinsurance renewal season often sets the tone for pricing in the primary insurance market. Fitch said survey respondents viewed property and property-catastrophe as the lines of business with more attractive profit margins for 2025.

Property reinsurance prices have eased significantly over the last year from a high in January 2023. Just under 40% of survey respondents felt the increases would hold up to increasing loss trends for property CAT, while 36% disagreed. Another 25% weren’t sure.

While Fitch said it expects reinsurers to maintain profitability in property in 2025, it said it fully expected underwriting discipline to continue, particularly for secondary peril events.

While the survey occurred before Hurricane Helene swept through the southeastern United States, early estimates suggest the primary market will bear the majority of losses due to higher attachment points for reinsurance.

No Thanks On Casualty

There was one area of agreement for market players – the casualty sector will be the least appealing for reinsurers in the coming year.

Fitch said it expects double-digit price increases for casualty reinsurance for programs renewing in January. “We anticipate tough negotiations with cedants as reinsurers do not believe this year’s U.S. casualty price rises have been sufficient,” said Fitch in another recent report, adding, “Reinsurers’ concerns that market prices are too low is leading them to prune their exposure and limit capacity in the lines of business most affected by adverse loss development.”

Reinsurers already boosted casualty reserves this year in anticipation of higher losses due to social inflation and more frequent verdicts over $10 million, Fitch noted, calling the move necessary in some cases and “preemptive and opportunistic” in others. The firm explained that reserve redundancies in workers’ compensation and property have “greatly offset” any deficiencies in the more exposed lines of liability and commercial auto.

Casualty reinsurance pricing rose 15% for loss-impacted accounts and 10% for loss-free accounts during mid-year 2024 renewals, the firm said. More increases are expected in 2025, along with likely cuts in quota-share commissions and limits.

“U.S. tort reform, which could help to reverse the increasing loss trend, does not seem to be a public policy priority in the near term,” observed Fitch.

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