Kevin J. O’Donnell, CEO of RenaissanceRe, said real estate catastrophe rates remain so ample that relatively large losses would be needed to drive meaningful adjustments, though he noted that it’s not the catastrophes themselves that change rates but the cumulative effect of rising loss trends and inflation gradually outpacing rates.
In a letter to shareholders included in RenRe’s 2025 annual report, O’Donnell explained that the industry’s rate changes follow a “punctuated equilibrium” pattern, in which rates remain relatively stable over long periods of time but occasionally change dramatically, usually following major catastrophic events.
“So, given the continued growth in annual catastrophe losses, price adequacy tends to be lower the longer the time has elapsed since the last adjustment. In this case, smaller catastrophe losses are more likely to trigger a positive reinsurer-led price surge. However, if the last rate hike had occurred recently, prices may still be adequate, requiring large losses to adjust pricing significantly,” he said.
O’Donnell continued: “We first saw this dynamic with Hurricane Ian in 2022. Real estate disaster prices have been rising since 2017, but so have loss trends. Ian’s losses pushed these trends to unsustainable levels, prompting a sharp market correction and interest rates rising by around 50%.”
He said that in the current market, rates are still very adequate and pricing will only adjust significantly if relatively large losses occur, although this threshold is lower than what is required in 2025.
“This ‘intermittent’ rate behavior also explains why subsequent disasters do not necessarily result in another price increase. Hurricanes Helen and Milton occurred shortly after significant rate changes in 2023, so additional pricing improvements were not required as margins remained healthy,” O’Donnell said.
He also noted that looking at real estate disasters through the lens of casualty pricing is instructive because it provides a real-world check and insight into the likelihood of positive interest rate movements following an event.
“For example, our casualty actuaries have been monitoring trends in actual versus expected losses for many years. When assumptions diverge, reserves must be updated, resulting in adjustments that may span multiple years – either positive or negative. We view our casualty business in ten-year cycles and believe that if we underwrite effectively, it should increase in value over that time.
“Given its volatility, property catastrophe requires a larger risk premium, but the principle still applies. From this perspective, we believe rates in the property catastrophe business have generally remained ahead of trend over the past decade. While there is some subjectivity in this conclusion, this is supported by our property catastrophe results, with our calendar year loss rate averaging approximately 50% over the same period.”
O’Donnell also said he prefers to abandon traditional hard/soft market terminology and instead believes a better description of the market is the adequacy of rates, noting that adequacy of rates should drive underwriting behavior.
He emphasized that in reinsurance markets with sufficient interest rates, underwriters should bear more risks, and in markets with insufficient interest rates, underwriters should bear less risks.
“A common misconception is that falling rates define a soft market. Property catastrophe reinsurance in 2025 is a great example of this. Rates are indeed falling but remain very adequate. Our actions this year have been driven by rate adequacy levels, which is why we are growing our property catastrophe business despite falling rates. Even at lower rates, we are underwriting more risk because we expect this to be a significant accretive to shareholders,” O’Donnell explained.
He pointed out that for RenRe, rate adequacy depends on the expected profitability of the transaction and, more importantly, the returns generated by the transaction compared with the capital required to support the risk. If the return is greater than the cost of capital for reinsurance, the transaction is considered rate adequate.
He continued, “However, just because a deal has an adequate rate, doesn’t mean we will write it. Our goal is to build the best portfolio possible. That means comparing each deal with an adequate rate to our existing portfolio and to other plans or tiers that may have higher returns. These comparisons help determine overall line sizing, as well as adjustments to line sizing as rates change.”
“We repeat this process across all of our vehicles, recalibrating sensitivity and line-sizing decisions multiple times for each project. This allows us to assemble the best risk set for our shareholders and capital partner investors.
“When evaluating portfolios, many companies focus on minimizing exposure to the portion of the loss curve that could lead to expected losses on the balance sheet. However, this approach can result in missed opportunities to maximize earnings on the income statement. We evaluate both profit probability and loss probability on an underwriting basis and on the three drivers of profit.”
RenRe’s CEO also spoke on the reinsurer’s recent fourth-quarter and full-year 2025 earnings call, saying he expects the real estate supply-demand dynamics seen at renewal on January 1 to continue through mid-year renewals. He believes the robustness of interest rate adequacy will produce similar results to what the company achieved in 1.1.
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