BMO Capital Markets said property catastrophe reinsurance pricing is trending downward and meets or exceeds market expectations at mid-2026 renewals. The company also expects prices to remain under pressure if reinsurance losses do not reach $100 billion or more.
Unlike previous weak market cycles, BMO analysts noted that average buyer loss retention levels – the point at which reinsurance claims are initiated – remain high.
In 2023, at the start of the hard market cycle, reinsurers significantly increased their attachment points in response to rising losses from secondary disasters such as severe convective storms and wildfires. Despite lower pricing, reinsurers have remained disciplined, with reports suggesting attachment points remain.
BMO said risk-adjusted return on equity (RoE) is still expected to be in the teens based on model calculations as reinsurers move further and further away from key risk attachment points; therefore, the market is not Yet to reach single-digit RoE in weak market.
Analysts have observed greater pricing pressure at the top of the reinsurance tower, while lower tiers closer to actual risk have seen smaller price drops.
“We are a bit surprised by this, as we expected Florida’s physical tort reform to be factored into the pricing equation, but it does not appear to have happened in a material way yet. While no one has been willing to quantify the benefits yet, carriers comparing claim volumes following Hurricanes Helen and Milton in 2024 to Hurricane Ian in 2022 have found clear benefits,” the analysts added.
BMO further emphasized: “Terms and conditions remain flexible on 6/1 renewals. Pricing remains a focus and pressure point on 6/1 renewals. Cedent retention levels remain stable, which is a positive sign for reinsurers. Total coverage is increasingly participating in discussions about renewals, but supply has been flat.”
Looking to early 2027, BMO expects pricing to continue to face downward pressure, assuming catastrophe-related reinsurance losses do not materially exceed forecasts (>$100B).
Analysts said the likelihood of such an outcome is extremely low, less than 20%.
BMO concluded: “Our base case pricing outlook is for continued deceleration, albeit with a smaller downward slope (high single digits to low double digits vs. mid-single digits). We believe terms and conditions may begin to unravel in 2027 after two years of rigorously scrutinized price-focused renewals. This may be through more overall treaties, lower retention rates, or broader coverage.”
