Insurers are increasingly adopting multi-year spread loss (MYSL) structures to manage volatility from catastrophe exposure and navigate a selective reinsurance marketplace, according to the latest insights from Gallagher Re.
It documents MYSL arrangements as alternatives to conventional annual reinsurance, with adoption expanding from traditional strongholds in Europe and Asia-Pacific into the US market as carriers seek tools to stabilize earnings amid volatile loss environments.
MYSL products are non-proportional, multi-year contracts that distribute retained losses across multiple periods, typically over three-year terms. These arrangements can be structured as working-layer excess of loss, aggregate or stop-loss covers, with premiums that incorporate both risk financing and reinsurer margin.
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The structures often feature profit commissions exceeding 50% of premium, which are returned to cedants if losses fall below projections. Carriers can cancel and commute after a loss-free year, locking in profit commission payments and frequently achieving a lower net cost compared to traditional annual reinsurance programs.
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When losses do occur, contract terms remain fixed for the duration, preventing the immediate premium increases that typically follow an annual loss.
A global carrier used a three-year catastrophe spread-loss arrangement offering a fixed reinsurer margin, 100% profit commission and an annual limit double the traditional annual cap, according to Gallagher Re. This structure allowed the insurer to maintain lower retentions while securing stable pricing regardless of loss experience.
Reinsurers have expanded participation in structured products, with new market entrants providing additional capacity. EY's latest market analysis indicates that loss-free property catastrophe placements have experienced softening of 10% to 15% as capacity has returned to the market, while alternative capital now represents approximately 17% of global reinsurance capacity, marking a 33% increase since 2020.
Pricing in this segment is expected to remain stable because structured offerings balance long-term maximum loss exposure with fixed-margin premiums, providing carriers with predictable costs even as broader market rates soften.
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These arrangements help insurers absorb volatility from weather-driven events. Severe events such as convective storms, floods and wildfires typically occur within single years and can be partially self-financed or amortized across multiple periods. This approach supports earnings consistency and can improve valuation multiples dependent on predictable results.
Gallagher Re indicates that CFOs may find MYSL solutions beneficial when addressing combined-ratio stability, dividend protection, capital sensitivity or volatile commercial and specialty line exposure.
Technology and capital advances are enhancing insurers' capabilities to implement these solutions, as demonstrated by recent fintech partnerships securing significant backing to modernize risk management platforms.
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