ORLANDO, Florida – Increased capacity should drive reinsurance pricing down this year, but the California wildfires will likely slow the rate of property catastrophe rate decreases, experts say.
Rick Hartmann, senior vice president-treaty broking at Guy Carpenter & Co. LLC, the reinsurance brokerage arm of Marsh & McLennan Cos. Inc., said the wildfires will be more of an earnings event for reinsurers than a capital erosion and balance-sheet event.
Guy Carpenter estimates the industry loss from the Eaton and Palisades wildfires at $30 billion to $40 billion, with some reinsurer trade groups putting the loss at $50 billion, he said Thursday during a panel discussion at the World Captive Forum, sponsored by Business Insurance.
The wildfires will rank as the costliest in U.S. history, Mr. Hartmann said.
The loss is expected to be contained within insurers’ catastrophe budgets, with 85% of the aggregate loss expected to be driven by personal lines, he said.
“It’s more of a select group of reinsurers and insurers that have exposure to the event,” he said.
Reinsurance capital increased 6.9% to $607 billion in 2024, with traditional capital rising 6.8% and alternative capital 7%. The sector is still expected to maintain a high return on equity of 15% this year, Mr. Hartmann said.
Guy Carpenter’s global property catastrophe rate-on-line index fell 6.6% last year. “That was the first time in seven years that we observed a decrease, albeit we’re still seeing pricing at record highs,” Mr. Hartmann said.
Despite the overall decrease in reinsurance rates, nonstandard auto is tough to get reinsurance for, and medical malpractice has increased, said Nick Frost, Bermuda-based president of Davies Captive Management Ltd.
The casualty market was more disciplined at Jan. 1 renewals, with conversations more technical and data-driven, Mr. Hartmann said.
The increase in captive formations in recent years is attracting greater attention from fronting insurers and reinsurers, panelists said.
Captives don’t really fall in the alternative risk category anymore, said Jason Tyng, vice president and captive lead of the U.S. Captive Solutions Group at HDI Global Insurance Co., part of HDI Global SE. “They’re moving more toward the mainstream.”
As more entities have access to protected cell companies and rent-a-captives, “they’re going to become more prevalent as the market moves downward to grab a larger share,” he said.
“For reinsurance carriers, that’s just another opportunity for them to get together and get in on a piece of the pie.”
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.