Speaking today at a briefing held in Monte Carlo at the Rendez-vous event, Fitch Ratings analysts said the expectation is that property catastrophe reinsurance rates will keep softening and attachments may decline somewhat, but through this they anticipate discipline from the ILS investor base.
The Fitch Ratings analysts are anticipating the property catastrophe reinsurance market dynamics we see today will persist unless there is a major market turning loss event.
Capital build-up is expected to persist too, with alternative investors showing growing interest in supporting catastrophe bonds, reinsurance structures such as sidecars and other insurance-linked securities (ILS) opportunities.
Brian Schneider, Senior Director in Fitch Ratings’ North American insurance rating group commented on alternative capital developments during the briefing, “Certainly you’ve seen the growth in the catastrophe bonds, but even more so we’ve seen a benefit from a renewed interest in sidecars in the market, both in property catastrophe, which has historically been the case. But then also you’ve seen growth in non-catastrophe including several casualty risk sidecars that are adding to the overall ILS capital support now.
“So we do expect continued growth in the alternative market into 2026. We see supply as being very strong from investors. Loss activity has generally been limited to the ILS investors, and we see the significant demand from sponsors continuing, given the high levels of risk.”
But he recognised that this is also adding the the weight of capital in the reinsurance sector, so having an inevitable effect on pricing.
“Investor supply to the ILS sector remains very robust, for both existing players and new entrants particularly in the upper-layers of reinsurance programs,” Schneider explained.
Adding that, “We’ve seen a lot of the new and upsized transactions resulting in some spread tightening, but investors still feel very interested in and very attracted to the sector thus far.”
Which leads to the inevitable conclusion that, “We do expect property cat to decline going into next year.
“But just given what we’ve seen in the market since the reset a few years ago, it looks like and feels like a different market where companies are not looking to go into that softening area that we that we saw during the last long soft market.”
Which suggests there may be some more discipline this time around, than in the last downward phase of an extended softening cycle in property catastrophe reinsurance.
Perhaps giving some cause for positivity, Schneider believes ILS investors and fund managers may be more disciplined this time around, having learned from previous cycles.
“I think investors have higher expectations as to what return should be,” Schneider explained. “We’re not seeing the ILS market push the overall market down, like maybe we would have seen in the last soft market.
“I think investors in the ILS space, even though the spreads are tightening, we do see them demanding better returns for their risk.
“They’ve understood how catastrophe risk and climate risk is increasing, so they’re going to demand returns for their risk. So I think those types of things will help to keep things disciplined.”
While more discipline is anticipated on the ILS side of the market, Fitch Ratings does believe that the all-important attachment points may come under pressure at the reinsurance renewals.
There is an expectation of greater flexibility being extended to protection buyers, perhaps resulting in some relaxation of terms. This is something brokers are pushing for in their discussions in Monte Carlo.
Manuel Arrivé, Director, EMEA Insurance, Fitch Ratings gave a prediction, saying, “There is demand from cedents to reinsure higher frequency and manage earnings volatility.
While on the reinsurance capital providers, “If they want to grow, they will have to loosen some of the terms and conditions.
“So we will be surprised if there is not a lowering of attachment points on property cat going forward.”
