Despite signs of softening at key renewal periods, returns on capital in the property catastrophe reinsurance sector remain “very attractive,” according to analysts at Peel Hunt, who noted that the market continues to deliver internal rates of return (IRRs) well above the cost of capital.
Following first-quarter 2025 results, reinsurers have maintained discipline in underwriting, with terms, conditions, and attachment points largely holding firm, even as rates have declined by around 7% at the January renewals and continued to soften in Japan through April.
“Rate pressure is likely to continue in the remainder of the year,” the analysts noted, but emphasized that underwriters are staying selective.
There is currently no indication of a significant influx of new capital into the space, though traditional reinsurers continue to provide ample capacity.
“Reinsurers continue to underline that returns on capital remain well above the cost of capital, and overall Property catastrophe IRRs are fairly similar to 2024,” the analysts added.
On exposures, reinsurers appear more cautious for the rest of the year, after deploying growth capital in Q1.
Growth from here is expected to be either opportunistic or linked to relationships with key cedents.
“We have not come across any major reinsurer suggesting it would pull back from Property catastrophe underwriting, albeit one or two are likely to pause exposure growth and let attractive rates earn
through,” Peel Hunt added.
Analysts also noted that cedent demand for cover remains high, helping absorb available capacity, and this trend is expected to hold through the upcoming U.S. renewals in June and July.
Looking specifically at the Florida market, reinsurers are forecasting flat to soft pricing depending on loss experience. “We have not read any expectations that rates would harden at the June/July renewals,” the analysts added, even after a relatively active first half of the year in terms of catastrophe losses.
“Loss-affected classes or renewals lower down the programme towers could be priced at a premium; however, this seems unlikely to ‘move’ the broader market at this point. There is an offset at the top of the programmes, where pricing for peak limits are likely to continue to drop,” the analysts continued.
Meanwhile, pricing for peak limit layers continues to soften. Peel Hunt notes a “balanced market” dynamic in Florida, with solid demand being met by a healthy supply of capital, and no significant change to terms and conditions expected.
Furthermore, analysts at KBW recently noted that during meetings with reinsurance executives, the general expectation is for property catastrophe rates to decline by approximately 10% on a risk-adjusted basis at the upcoming June 1 renewals. They also said that even after some softening rates remain sufficient for reinsurers to deliver attractive returns.
However, they emphasized that outcomes will vary significantly by layer, with the most pronounced rate reductions anticipated at the top of programme towers, particularly where catastrophe bonds and industry-loss warranties (ILWs) are placed.
