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According to Joachim Wenning, CEO and Chair of the Board of Management at Munich Re, the positive trends experienced in reinsurance over the last year are not expected to weaken during the remaining renewals of 2024.

In his letter to shareholders at yesterdays Munich Re AGM, Wenning explained that reinsurance has been particularly good for Munich Re over the last year or so.

Commenting on 2023, Wenning said, “Insurance revenue in this field rose to about €38bn, driven by organic growth particularly in natural disaster business and specialty insurance.

“Reinsurance as a whole contributed nearly €3.9bn to the Group’s 2023 net result. Let me put this straight: these figures are spectacular.”

This despite the P&C reinsurance result being “weighed down by high natural disaster losses,” although hurricane season was relatively benign there were “numerous severe convective storms in North America and Europe in particular caused unprecedented losses,” Wenning went on to explain.

Munich Re, like other major reinsurers, has taken the opportunity to grow its P&C reinsurance business through the hard market conditions and Wenning does not expect any immediate reversion to reinsurance fortunes, for his firm at least.

Looking ahead, the Munich Re CEO explained, “We’re confident that the favourable market environment for property-casualty reinsurers will continue throughout 2024.”

He continued to explain that, in 2024, “The renewals at 1 January were positive for us. We managed to continue the previous year’s very high level of profitability and further enhance the quality of our portfolio.”

Adding, “What’s more, we don’t anticipate this trend to weaken during this year’s remaining renewal rounds.”

So, Munich Re is expecting stability at least, overall at the upcoming reinsurance renewals of June and July 2024, it seems.

With such a broadly diversified and global book, that’s perhaps no surprise, as while some areas of the market may be softening, such as top-layer catastrophe risks, it’s clear that other areas of reinsurance are set to remain stable, in pricing terms, while others continue to catch-up with primary rate trends as well.

All in, a positive outlook from the CEO of one of the largest companies in the industry, which should perhaps help to settle any nerves that a wholesale, capital influx triggered softening could be on the horizon.

Positive reinsurance trend to remain strong through renewals: Munich Re CEO was published by: www.Artemis.bm
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Universal Insurance Holdings, the Florida headquartered insurer, has already completed its June reinsurance renewal and its CEO said that the company added more multi-year protection this time, while also adding more reinsurers to its panel.

As a Florida focused carrier, Universal is considered one of the bellwether’s for signals of appetite for risk and use of reinsurance for those operating in the state.

Back in March, the company had already revealed that it had secured 90% of its first-event reinsurance tower for 2024 with more multi-year coverage, as the company got out early to avoid the market congestion around the mid-year renewals.

Now, Stephen J. Donaghy, Chief Executive Officer of Universal, has explained that the mid-year reinsurance renewal is completed some weeks ahead of the coverage inception date.

“I’m pleased to announce the completion of our 2024-2025 reinsurance renewal for our insurance entities, as our program is now fully supported and secured,” CEO Donaghy explained in announcing the insurers first-quarter results (read more on the results over at our sister publication Reinsurance News).

Donaghy went on to explain that, “We’ve also secured additional multi-year coverage, taking us through the 2025-2026 hurricane season and have added new, financially strong reinsurers to our existing panel of long-term partners.”

“This achievement reflects the diligence and planning of our reinsurance team throughout the year,” he added. Also saying that, “Program cost and coverage were consistent with our expectations and we’ll provide specific details at the end of May, as we typically do.”

Universal has been growing back into Florida and reported 5.2% growth in Florida for the first-quarter, but also 25.6% in other states, showing that its still on a path to diversify its business further.

Still, almost 80% of Universal’s premiums written in Q1 2024 came from Florida, reflecting the fact its reinsurance tower is largely a Florida wind risk opportunity.

Universal finalises renewal with more multi-year reinsurance, expanded panel: CEO was published by: www.Artemis.bm
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In what is perhaps a reflection of an insurance and reinsurance marketplace with more catastrophe risk capital available, broker Marsh has for the first time in a while cited a slowing level of rate increases for catastrophe exposed commercial property accounts in the United States, with even some rate decreases reported.

For around five years now, there hasn’t been any real talk of catastrophe exposed property insurance rates in the US decreasing.

The seemingly inexorable rise in property insurance rates for both commercial and residential properties in regions of higher catastrophe risks, as well as those with tropical storm exposure on the coast, has been a feature of the market for some years now and while it does continue, there are signs of moderation, perhaps even stabilisation.

Marsh reports that, overall, it sees US commercial property insurance rates as still increasing, but stabilising, with an average rate increase of 8% in the first-quarter of 2024, down from an 11% average increase in the final quarter of 2023.

However, the commentary is perhaps the most positive, from a protection buyers point of view, in quite a long time.

“Many companies were able to secure additional limits in higher layers and improve coverage as competition increased and rate increases have leveled off,” Marsh explained.

With one driver being that, “Strong insurer financial results and additional reinsurance market supply led to increased insurer appetite.”

Importantly, the broker added that, “Companies with concentrations of assets in catastrophe (CAT) zones — such as the Gulf of Mexico, Atlantic coast, and California — that had experienced higher rate increases in recent years have begun to see lower increases or even decreases.”

But also explained that things still aren’t easy and adjustments are still being made, as “Underwriters continued to scrutinize CAT deductibles and limitations of cover for non-physical damage, cyber, and communicable disease.”

As a result of still very high insurance rates, protection buyers are exploring alternatives still and Marsh explained that, “Insureds continued to increase retentions and adopt alternative risk transfer such as captives, parametric, or structured solutions.”

In Europe where property rates slowed to 5% in Q1, down from a 7% increase in the previous quarter, the picture has also perhaps become more stable, with buyers in catastrophe exposed areas scrutinised, but capacity seen as generally available, even for cat exposed risks, although Marsh noted that, “Companies with natural catastrophe exposure generally saw above average price increases, capacity reductions, increased deductibles, and scrutiny of limits.”

It’s not the same everywhere though and Marsh highlighted that Mexico is one area where capacity was seen as low, “Contributing to increased rates in the wake of Hurricane Otis, particularly for complex risks and those with catastrophe exposure,” although in LatAm overall property rate increases slowed slightly as well in Q1.

In Asia, while overall property rates declined 1%, Marsh said that, “Highly CAT-exposed geographies, including Japan, Taiwan, and the Philippines, and industries with significant business interruption exposure remained exceptions to the downward rate trend.”

Elsewhere, such as the Middle East, Africa and India, reinsurance pricing is still filtering through and resulting in some rate increases, Marsh noted.

Overall around the globe, it’s clear catastrophe exposed property rates continue to move higher at the fastest rates, which is as you might expect, but there is also now clear evidence that improved reinsurance market conditions and better supply of catastrophe risk capital is filtering down to the primary insurance space.

In the United States, where much of the influx of catastrophe risk capital is naturally focused, conditions appear much-improved, compared to just a few quarters ago, with the effects of more abundant reinsurance capital definitely evident here.

It will be interesting to see whether any moderation begins to become evident in the US homeowners marketplace, in regions with elevated catastrophe risks, or whether that takes longer to manifest and could be dependent on how the hurricane season plays out.

However, it is worth remembering, that some are forecasting that catastrophe exposed commercial property insurance renewals are still expected to see perhaps the biggest rate gains in 2024.

Rate increases slower for catastrophe exposed US property in Q1: Marsh was published by: www.Artemis.bm
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K2 Advisors, the hedge fund focused investment management unit of Franklin Templeton, believes that the forward-looking total yield potential of insurance-linked securities (ILS) remains attractive despite recent spread tightening, leading the manager to keep catastrophe bonds as its top sub-sector pick.

Looking to the rest of the second-quarter of 2024, overall, “the ILS market remains attractive,” after a more orderly period of reinsurance renewals and recent tightening of spreads, K2 Advisors said.

“The rate-on-line for private ILS strategies and the catastrophe bond market spread remain elevated and provide appealing total yield potential,” the alternative asset manager explained.

K2 Advisors continues to believe that investors should look to alternatives, such as insurance-linked securities (ILS), as diversifying strategies are an advised complement to their long-only portfolios, which the asset manager cautions are “only becoming more and more correlated to one another.”

Which makes accessing relatively uncorrelated returns from an asset class such as ILS and reinsurance all the more important right now.

They explain, “We think it is prudent to think of future returns and risk distributions as being wider and having fatter tails to both the upside and downside. Active asset managers, of which hedge funds are the most agile and dynamic, may need to be a larger component of asset owners’ portfolios for the foreseeable future.”

On ILS, the K2 Advisors team note that, “The forward- looking total yield potential in ILS markets remains attractive.”

You can analyse the yield of the catastrophe bond market using Artemis’ chart.

While catastrophe bond spreads tightened in response to supply-demand dynamics, the team still believe stabilisation is ahead.

“Given the projections for an extremely active year of primary market issuance, coupled with the fact that we’ve already seen over US$5 billion of such offerings during the first quarter, we expect spreads will likely stabilize as we approach hurricane season,” the K2 Advisors team explained.

Adding that, “The combination of increasing investor demand for more senior ILS risk and higher total insured values (likely due to economic inflation) has led the catastrophe bond market to reach its largest size on record.

“The current spread environment, coupled with meaningful collateral return, continues to provide, in our view, an attractive entry point for investors into the catastrophe bond market.”

K2 Advisors maintains an “overweight” view on the insurance-linked securities (ILS) sector as a whole, given the still attractive returns it can generate for investors.

On catastrophe bonds, private ILS transactions (so collateralized reinsurance) and retrocession, K2 Advisors remains with a “strongly overweight” view.

While the manager is “neutral” on industry-loss warranties (ILW’s) and “strongly underweight” life ILS investments.

When it comes to ranking those sub-sectors, which K2 Advisors does versus other alternative and hedge fund asset classes using a conviction and type of investment weighting as to how it might recommend a strategy, the manager places catastrophe bonds right at the top.

Cat bonds have a z-score of 2, retrocession 1.6, private ILS transactions 1.4 and these all come in the top four recommended sub-sector strategies, in K2 Advisor’s opinion.

Such scoring and recommendation are seen by end-investors, which can only be good for the long-term visibility and popularity of the ILS asset class.

Reflecting on the year so far, the K2 Advisors team say that, “The lack of pricing giveback following the rate reset last year was a strong positive sign of the future health of the markets,” at the key January reinsurance renewals.

Looking ahead, for catastrophe bonds in particular, the investment manager explained, “We expect to see some level of spread stabilization over the next several months, as increased primary market activity will help soak up excess cash in the market.

“There was a record setting US$15 billion of new catastrophe bond issuance in 2023, and early indications suggest primary market issuance in 2024 could set another record.”

ILS market yield potential remains attractive, cat bonds still top-pick: K2 Advisors was published by: www.Artemis.bm
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Catastrophe reinsurance pricing for programs in the United States is seeing “material softening” in minimum rates-on-line, broker Gallagher Re has said, as reinsurers “abandon” the need for top-layer pricing to exceed the risk-free rate.

While there are only limited US property catastrophe reinsurance renewals at April 1st, the broker notes that placements seen suggest a continuation of the moderation trend witnessed at January renewals.

All of which is playing out in the catastrophe bond market, where pricing for protection has softened over recent months.

“Capacity has continued to flow into the property catastrophe market, where capacity is sufficient to meet expiring and new capacity needs,” Gallagher Re explained.

Gallagher Securities, the insurance-linked securities (ILS) and investment banking broker-dealer arm of the broker noted the trend in the cat bond market through the first-quarter of 2024.

Saying that, “Cat bond risk spreads for most perils have declined 30% plus year-on-year but remain stable vs. Q4 2023 with growing capacity in dynamic balance with growing demand.”

You can analyse trends in cat bond risk spreads by year and by quarter in our chart.

While cat bonds generally place in the upper-layers of reinsurance towers, Gallagher Re noted that lower-layers are still more challenging for cedents.

“Cat pricing discipline continued at the bottom end of programs, where risk adjusted decreases were difficult to achieve,” the broker said.

While at higher layers, where the cat bond market is most prevalent, “We saw risk adjusted rate reductions at the top end of programs, particularly on capacity that was purchased new in the height of the hard market.

“We are seeing the end of “inverted pricing” where new top layers placed in the past couple years required pricing in excess of underlying layers.”

Gallagher Re sees the risk market as still firmer than property catastrophe placement for the United States, as capital has not flowed to that segment of the market as much as to pure cat risks.

“That said, across both risk and cat markets we are seeing material softening in minimum rates on line, as reinsurers abandon the requirement for top layer pricing to exceed the risk-free rate of return in US Treasuries,” stated Gallagher Re.

US cat sees “material softening” in minimum rates-on-line: Gallagher Re was published by: www.Artemis.bm
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Early signs suggest that the Florida catastrophe reinsurance renewals at June 1st 2024 will see improved conditions for cedents, as capital has flowed in and reinsurer appetites have recovered, according to Marsh McLennan CEO John Doyle.

Speaking yesterday during the Marsh McLennan earnings call, Doyle highlighted an improving marketplace for the clients of his firm’s reinsurance broker Guy Carpenter.

The recent April 1st reinsurance renewals saw increased capacity and reinsurer appetite, which the broker expects will positively influence the June reinsurance renewals as well in 2024.

“Reinsurance market conditions remain stable with increased client demand and adequate capacity,” Doyle explained.

He noted that, “In the April renewal period, US property cat reinsurance rates were flat, with some decreases for accounts without losses,” while “Loss impacted accounts averaged increases in the 10 to 20% range.”

Adding that, “I think both markets continued to stabilise, on average, in the quarter. And again, I would remind everyone, it’s a collection of markets, not a single market. That stabilisation is good for our clients and in some cases a better market has led to increased demand in both insurance and reinsurance.”

Dean Klisura, CEO of Guy Carpenter went into some more detail, saying, “Market conditions are stable, but we’re definitely seeing increased client demand to buy additional property cat limit, particularly at the top end of programmes. That was very pronounced throughout the first quarter, at 1/1, through the quarter, and certainly that trend continued on April 1st.”

Adding that his teams are seeing, “Strong capital inflows into the reinsurance market, driven by strong reinsurer returns, double digit returns in 2023.

“Reinsurer appetite is increased for property cat, there’s an inflow of capital and capacity, competition at the top end of programmes, it’s been good for both buyers and sellers in the marketplace.”

Looking ahead to the mid-year, Doyle explained, “Early signs for June 1 Florida cat risk renewals point to improve market conditions for cedents, increased reinsurance appetite for growth should be adequate to meet higher demand.”

Which is already being seen in early placements for the mid-year and the catastrophe bond market.

Reinsurance capacity levels are expected to be more than adequate, while differentiation will continue and loss impacted accounts are still likely to see the greatest chance of increases, it appears.

However, Marsh McLennan CEO Doyle also commented that, “I would also say that insurers and reinsurers are cautious about that rising cost of risk environment that I mentioned as well. And so, while again a stabilising market is better for our clients overall, I don’t expect that relative stability to change anytime soon, given some of the rising cost of risk issues that the insurance community is confronting today.”

This “relative stability” suggests that the appetites for risk may not increase so significantly at the lower-levels of reinsurance towers, which are again likely to prove the most stable of all the layers placed at 6/1 and 7/1 renewals.

Improved Florida cat reinsurance renewal conditions expected for June 1: MMC CEO was published by: www.Artemis.bm
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Banque Bonhôte & Cie, a Swiss private bank, investment firm and wealth manager, has announced the launch of a new environmental, social and governance (ESG) focused fund strategy that will incorporate catastrophe bonds as one of its allocations.

Pierre-François Donzé, Head of Asset Management at Banque Bonhôte, said that, “Our approach and the integration of ESG criteria, is based on a quantitative allocation methodology to identify appropriate investment opportunities in the entire spectrum of the fixed income bond universe.”

The newly launched Bonhôte Selection Global Bonds ESG fund strategy does not follow a benchmark, instead leveraging quantitative methods to identify assets to invest in from the fixed income universe, based on indicators that define the attractiveness of one type of bond, over another.

These can range from the majority of the global fixed income universe, including sovereign bonds, investment-grade and high-yield corporate bonds.

But in addition catastrophe bonds are a specific asset class that will be targeted for this ESG focused investment fund strategy, the private bank explained.

The private bank notes that, catastrophe bonds, “Offer an advantageous risk/reward and provide useful diversification through a performance that is largely uncorrelated with conventional financial markets.”

Explaining that, “CAT bonds, which are part of the insurance-linked securities (ILS) category, are used by insurers and reinsurers to transfer the risks of predefined events to investors.”

The strategy has been optimised for investors whose reference currency is the Swiss franc and takes into account the cost of currency hedging as well.

The use of ESG criteria to identify opportunities is “a fundamental part of our investment strategy,” Banque Bonhôte & Cie said.

“The fund promotes environmental or social features, or a mix of the two, by investing in the vehicles and securities of issuers with an ESG profile above the median of their peers. Many controversial business activities and sectors are automatically excluded,” the company further explained.

Catastrophe bonds can be up to a maximum of 20% of the ESG investment fund strategy

Julien Stähli, Director of Investments, stated “This new fund gives pride of place to ESG criteria and marks a further step in our long-standing commitment to responsible investment and quantitative approaches.”

Donzé also said the approach taken, “Makes it possible to add value compared to strategies limited to a single market segment. The indicators used estimate the relative attractiveness of the various segments of the bond market on a historical basis.”

He also said that the Global Bonds ESG fund portfolio will be “dynamically rebalanced” when the indicators used suggest this is necessary.

It’s clear that Banque Bonhôte & Cie recognises the investment qualities of catastrophe bonds and the diversifying benefits they can deliver to portfolios, as well as the inherent ESG qualities given their role in the provision of critical disaster risk financing to support the global insurance and reinsurance industry.

As we previously reported, Banque Bonhôte & Cie had said before that catastrophe bonds, as an asset class, exhibits the rare property of price moves that are independent of broader financial markets and so can be considered “the only true source of diversification.”

Banque Bonhôte launches ESG fund strategy incorporating catastrophe bonds was published by: www.Artemis.bm
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The City National Rochdale Select Strategies Fund, a US mutual insurance-linked securities (ILS) fund focused on investments into industry-loss warranties (ILW’s) and industry-index trigger catastrophe bonds, delivered its strongest annual performance in the last year, with an almost 15.6% return to its investors.

With a now six year track record for this fund, Kurt Hawkesworth, President and Chief Executive Officer of the City National Rochdale Select Strategies Fund, commented, “The Fund’s 2023 portfolio performed well, with a net return of +15.58% for the year ended January 31, 2024.

“The Fund’s 2023 calendar year net return was the highest since the Fund’s inception and 2023 is the sixth consecutive year that the Fund generated positive, fundamentally non-correlated returns.”

Recall that, investment adviser City National Rochdale (CNR) offers this industry-loss warranty (ILW) and industry-index trigger focused mutual insurance-linked securities (ILS) fund strategy in the United States.

The capital from the City National Rochdale Select Strategies Fund is allocated to opportunities that are portfolio managed by the ILS investment team at Neuberger Berman and housed in its segregated account vehicle.

As Artemis’ index of ILW pricing shows, the industry-loss warranty (ILW) opportunity remains attractive, despite some notable softening of index-linked ILS products, such as ILW’s and catastrophe bonds.

That has helped the CNR ILW fund to a record return, over the last year to January 31st 2024.

Hawkesworth continued to explain, “The Fund’s 2023 return reflects the higher premiums realized following the occurrence of Hurricane Ian and increasing cash yields. In the catastrophe bond (“Cat Bond”) space, positive momentum for the Fund’s performance was assisted by a record total issuance in the primary market, and a secondary market that created tactical trading opportunities as sellers gradually sold off bonds maturing at the end of the year at a discount to raise cash for new issuances.”

Hawkesworth also noted that the CNR ILW fund portfolio was constructed to be more defensive, with higher attachment points, wider exclusions of non-peak secondary perils, and increased regional diversification through county- and state-weighted positions.

He noted that, weighted ILW protection continues “to become a larger share of the portfolio as demand from insurers and reinsurers for these products has steadily increased.”

He also commented that, “We believe that the incorporation of real-time environmental and financial risk considerations can have a meaningful positive influence on longer-term results and that our active management was an important driver of performance in 2023.”

Looking ahead, Hawkesworth explained that, “Currently, pricing in both the industry loss warranty (“ILW”) and Cat Bond segments continue to be attractive, albeit down slightly from the historic highs seen in Q4 2022. We remain confident that this environment will continue to present a compelling investment opportunity given the demand we are seeing as well as the structural and pricing improvements achieved post-Hurricane Ian.

“The Fund’s portfolio construction process for 2024 is now well underway, and we are focused on diversification and capital-efficient opportunities in the ILW and Cat Bond markets, where we believe risk-adjusted returns are most attractive.”

At January 31st, the total net assets of the City National Rochdale Select Strategies Fund had risen to almost $223.9 million, up from $218 million as of October 31st 2023.

Investments into ILW’s and industry-loss trigger cat bonds totalled $211.9 million of that, slightly down from the $213 million at October 31st last year.

The 15.6% return is healthy and outpaces many pure catastrophe bonds for that period, as ILW’s can often have higher return potential.

View our chart of industry-loss warranty (ILW) price trends here.

City National Rochdale mutual ILW fund delivers 15.6% return was published by: www.Artemis.bm
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Broking giant Aon is anticipating a “significant increase in demand” for property catastrophe reinsurance capacity at the upcoming mid-year renewals, with market conditions expected to continue developing favourably for buyers.

“The positive direction taken by the U.S. property catastrophe reinsurance market in January and again at April 1 looks set to continue at mid-year, with ample property catastrophe capacity to meet demand, and signs of greater price competition,” Aon’s Reinsurance Solutions has explained.

Saying, “We anticipate a significant increase in demand for property catastrophe capacity at mid-year renewals, with attractive opportunities for reinsurers to put excess capital to work on well-priced lower layer covers as well as meeting demand for increased limit.”

The broking group notes that earlier renewal discussions are now happening on a significant number of US programs, while reinsurers are “ready to provide indications and lock in capacity.”

Among those reinsurers targeting property catastrophe risk, there is a “broad desire” to write larger lines in 2024, which positively for cedents means that “supply will be available for insurers looking to purchase additional limit.”

“As such, pricing improvement and enhanced consistency on terms is expected to continue heading into mid-year renewals,” the Aon Reinsurance Solutions team explained.

In addition to which, the broker believes there is now more openness among reinsurers to consider providing the kind of supplemental covers that had been absent from the market in 2023.

While there is also an acceptance that insurers will be looking to push more standardised terms across allocated lines.

For regional US insurance carriers, the efforts taken to improve portfolios are having a positive effect, Aon believes, with reinsurers increasingly showing a positive response to them.

“We are seeing a growing number of reinsurers writing specific regional programs for the first time,” Aon said.

Further noting that, “As reinsurers continue to acknowledge and respond to the portfolio, underwriting and structure enhancements made by U.S. regionals, the overall market for the segment will continue to stabilize.”

The Florida market is at a “dynamic” point in its history, Aon notes, as “legislative reforms and underwriting actions helped the market turn the corner.”

This bodes well for the June 1st renewals, when most Florida specific reinsurance towers renew.

The broker highlights that, “A group of 51 Florida focused personal lines property insurance companies tracked by Aon generated a positive underwriting income for the first time in the last four years with an almost $900 million improvement in net underwriting margin for 2023.”

Market dynamics in Florida are also set to result in a major shift of risk back to the private sector, Aon states.

Explaining that, “The shift of Florida Citizens customers to private carriers, combined with the expiration of the Florida government-funded Reinsurance to Assist Policyholders layer and planned increases in reinsurance globally for many insurers, will create significant additional demand for new property reinsurance capacity.”

The increased demand is expected to be met though, with reinsurance capacity for property catastrophe risk in Florida “set to return and expected to meet increased demand at mid-year renewals.”

In addition, the catastrophe bond market is playing a key role and “Catastrophe bond activity for Florida property carriers is also at record levels,” Aon says.

The broker counts almost $1 billion of Florida risk ceded through cat bonds through the start of 2024, while a number of cat bond deals remain in the market as well.

Read all of our reinsurance renewals news.

Mid-year renewals to see significant increase in US property cat capacity demand: Aon was published by: www.Artemis.bm
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