Despite continued pricing pressure, TD Cowen continues to see attractive opportunities in the property catastrophe reinsurance space, having spoken to management teams ahead of January 1, 2026.
The company said commentary on property catastrophe reinsurance pricing for January 1, 2026 renewals during its trip was slightly more negative than during the third-quarter 2025 earnings season, when forecasts centered on a -10% decline.
“Given the increase in reinsurance capacity relative to expectations a few months ago, our forecasts for the January 1, 2026 travel period are down around -15% on average, with some firms forecasting -10% to -15% and others forecasting -15% to -20%,” the company explained.
TD Cowen continued: “Most, but not all, companies are seeing greater pricing pressure in higher tiers relative to lower tiers. One insurer estimated that pricing in higher tiers could be as high as -20% to -25%, while lower tiers saw declines closer to -10%.”
Meanwhile, Ariel Re’s management is said to be striking an “optimistic” tone, noting that the sector remains in a strong position even with pricing down -10% in the lower tiers the company focuses on (a significant jump from January 1, 2023).
TD Cowen added, “Management has warned against viewing pricing as a binary view of ‘hard’ versus ‘soft’. Nonetheless, others have expressed the opposite view that the lower tiers may face more competition, as top brass have corrected this view over the last year.”
“Some firms believe 2026 pricing could be roughly equivalent to 2022 pricing levels but worse than 2023-2025 pricing levels. Nonetheless, attachment points appear to be improving from pre-2023 levels.
“Renewal deals for January 1, 2026 are progressing slowly, which may indicate sufficient capacity. Some estimate that about 90% of price discovery will occur within the next three weeks.”
Meanwhile, TD Cowen said property reinsurance pricing appears to be particularly under pressure in the cat bond and retro markets, although falling retro rates may provide incremental gains for reinsurers seeking retro protection.
Elsewhere, terms and conditions and retention levels appear to have remained largely unchanged, having improved significantly in recent years, the company said.
“That said, there does appear to be some incremental pressure on the margins (particularly on terms and conditions) given increasing market capital and competition. While nominal attachment points may remain largely unchanged, they are gradually being eroded by inflation. While we expect incremental pressures to persist going forward, businesses appear to be viewing the impact as incremental rather than more material,” TD Cowen observed.
The company continued, “Despite pricing pressures, management teams we spoke with continue to see attractive opportunities in property catastrophe reinsurance, with pricing increasing approximately 90% cumulatively in the U.S. and approximately 60% globally from 2017 to 2025.”
“As a result, the business is likely to remain profitable and above risk-adjusted return targets even if interest rates decline in 2026, and possibly beyond.”
