Jefferies analysts warned in a new note that risk-adjusted pricing will deteriorate further, with a mild hurricane season likely to trigger a 10-15% decline.
Analysts say property risk-adjusted rates turn negative at renewal on January 1, 2025, and reinsurance brokers/carriers mostly indicate mid-single-digit declines will worsen to about 5-10% at renewal in mid-2025.
Jefferies experts said: “While reinsurers have mostly held firm on terms and conditions, there are signs of a resurgence of master plans, although we expect limited participation from our underwritten names and very firm pricing for these plans.”
With this in mind, the report suggests that risk-adjusted pricing is expected to continue to deteriorate, with a mild hurricane season likely resulting in a 10-15% decline.
The analyst continued, “Renewals for no-loss accounts will likely see a decline of more than 15%, but some 1/1 renewals will include accounts with CA fire losses. A decline of more than 20% is historically unusual and has only occurred once since 1990.”
“Using Guy Carpenter’s U.S. Real Estate CAT RoL Index, risk-adjusted pricing could fall another 20% at renewal on January 1, 2026, but remain above 2022 levels.
“In addition, large and/or public reinsurers often achieve better terms and conditions and pricing than reported in the headlines, supporting more favorable returns on equity than industry commentary suggests.”
Jefferies analysts said elsewhere in the report that property catastrophe reinsurance continues to provide attractive opportunities for capital deployment. With retention rates unchanged, terms and conditions largely stable, returns remain resilient, and the pricing changes themselves will have a smaller impact on overall profitability than typically expected.
Discussions with the management team indicate that ROE remains well above the cost of capital, at approximately 20%.
However, Jefferies said it was taking a cautious stance on the sector, citing signs of significant softening in real estate catastrophe insurance rates and ongoing uncertainty in its liability reinsurance portfolio.
Analysts expect real estate disaster pricing to continue to weaken heading into the 2026 renewal cycle as ample capital and relatively mild disaster activity weigh on rate momentum.
While renewals in the first half of the year have historically carried most of the property risk, early indications are that cedants will strive for more favorable pricing and terms at renewals between January 1, 2026 and mid-year.
As a result, real estate catastrophe returns are expected to remain attractive but moderate, with potential returns trending towards 20%.
Competitive pressures from rollover and catastrophe bond markets may also add to downward pressure on pricing, as expanded alternative capital capacity results in tighter catastrophe bond spreads.
