What trends are impacting the treaty reinsurance market?

"Pricing has softened across the curve and that wasn’t as predictable until very recently"

What trends are impacting the treaty reinsurance market?

Reinsurance

By Mia Wallace

With nearly four decades of reinsurance broking experience to his name, Dan Bailey (pictured), partner, treaty reinsurance at McGill and Partners, has seen the reinsurance market at every point in the cycle that defines it.

How did the market fare in 1/1?

Offering his insights into some of the trends shaping the treaty reinsurance space today Bailey noted that, as with all markets, a lot of what happens in the property treaty world is loss related. “Our clients are all underwriters - either writing the primary insurance business or first tier reinsurance treaty business, and they would love the market to ease up a little so that they could run lesser retentions and be more able to cover secondary perils and some of the quirkier things that they currently have to cover net on the first-tier business coming in,” he said.

“I think the property retro market has been extremely disciplined, even post-Milton, but there’s a lot of capacity out there and things are beginning to change. While capacity continues to behave responsibly, we are in the midst of a pricing reset that clearly shows there was plentiful margin in the business post the loss years of 2022 and prior. Softening in pricing at 1.1.25  was expected at the top of programs with plentiful capacity, but pricing has softened across the curve and that wasn’t as predictable until very recently.”

How robust is the market today?

Bailey noted that in McGill’s reinsurance world, which is mainly London, Bermuda and US clients, clients and markets had a good year in 2024, which followed on from a strong 2023. Some ‘loss-affected’ Florida companies may see some knocks, he said, but that goes with their territory. “In the main, I think that the market is very robust at the moment and we’re not expecting any real changes, but it’s too early to tell given what happened at 1.1.25”

The treaty reinsurance team at McGill is still small, he said, but it goes wherever it sees opportunities for growth and diversification – including space, aviation, property treaty, A&H / Life, marine and energy, and excluding only ‘full blown’ casualty.

Looking to 2025, Bailey noted that the overriding focus for him and the team is to keep their focus on where they can find opportunities that add value for their clients. “We want to make sure that we’re completely on top of what the markets are looking to achieve out of the current renewal period and throughout 2025,” he said. “We’re fully in touch with newcomers to the markets and seeing whether they can be helpful to our clients. Ultimately, it's about staying on top of who's buying and who's selling at all times.

“That’s especially relevant with industry loss warranties (ILWs) because that can change from week to week. Sometimes people have got capacity they want to sell quickly, while others are looking at their aggregates and realizing they might have a bit of a exposure spike somewhere and they want to see if they can get a quick fix with an industry loss cover, rather than going through the process of putting together something a bit more contractual that takes a lot longer because of all the analytics and modeling that go into that to determine structure and pricing.”

Where can reinsurance brokers differentiate themselves?

It's only by fostering great client relationships that reinsurance brokers are able to stay on top of what their clients are looking to achieve. “Certainly, at the moment, the market is very robust, and I think it is standing firm on the coverage, attachments, and terms & conditions, and the coverage perils and scope that they are prepared to give. It's positive to see.”

McGill and Partners is still only four years into its treaty reinsurance journey, he said, but there’s a strength to be found in the agility of being a smaller speedboat rather than a cumbersome tanker. When it comes to the treaty reinsurance market, you need to be nimble in order to reflect how fast the market changes, but also have the broking execution, analytics and modeling expertise to back that up. “We’re seeing new index, parametric and retention cover enquiries – and these are all areas where we know we can make a real difference for clients,” he said.

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