KBW, a financial services firm providing research and advisory services across the insurance and reinsurance sectors, expects property catastrophe excess-of-loss (XoL) reinsurance rates to fall by at least 10% at the 1 January 2027 renewals.
The outlook comes from KBW’s commentary following the 2026 Rendez-Vous de Septembre (RVS), where the firm met with 16 companies over two days.
KBW said most of the re/insurance executives it spoke with anticipate property catastrophe XoL rates declining by 10% or more at the 1 January 2027 renewals. The firm noted that the expected reductions would nevertheless be smaller than those recorded at the 1 January 2026 and Florida property-focused 1 June 2026 renewals.
According to KBW, the outlook reflects the fact that current reinsurance pricing contains significantly less excess margin than it did previously. Several executives indicated that reductions of 10% or more could begin to put pressure on rate adequacy and may ultimately prompt some reinsurers to reconsider their participation in certain areas of the market.
KBW also pointed to the possibility that actual renewal pricing could prove weaker than current expectations. Based on the firm’s experience, 1 January pricing is generally, although not invariably, less favourable than the levels indicated by earlier Monte Carlo modelling. This could mean that property catastrophe rate reductions ultimately exceed the roughly 10% currently anticipated.
The firm said the continued decline in rates would also have implications for reinsurers’ underwriting margins. Even if the pace of reductions slows, KBW expects the impact of earlier rate decreases to continue to affect margins, which it regards as an important measure of reinsurer performance. For brokers, however, a more moderate reduction in reinsurance pricing would limit the drag on organic revenue growth, potentially creating a more favourable environment for net organic growth.
KBW said there was broad agreement among executives that the current direction of property catastrophe pricing is unlikely to change without a substantial insured catastrophe loss. The firm highlighted this year’s Super El Niño formation, which could soon set a record for the latest-ever initial Atlantic hurricane formation, as a factor that makes a major near-term loss event less likely, “ritual caveats notwithstanding.”
Some reinsurers told KBW that catastrophe losses remain the key factor capable of changing pricing conditions and that a return to significant loss activity could be sufficient to reverse the current trend. However, KBW cited modelling from one reinsurance broker which indicated that a move from the expected 10% rate reductions to 7% rate increases could require a combination of $200 billion in catastrophe losses, a 200 basis-point rise in interest rates and substantial adverse reserve development.
In casualty reinsurance, KBW said market conditions remain characterised by slowing rate increases rather than outright rate reductions. The firm noted that US casualty reinsurance is predominantly proportional, meaning movements in primary casualty rates are passed through to reinsurers, while higher ceding commissions are providing an additional source of pressure.
KBW expects continued inflows of third-party capital to add to the pressure on casualty reinsurance pricing, particularly if those inflows accelerate. However, the firm said a sustained renewed increase in casualty reinsurance rates would probably require third-party capital providers to deliver demonstrably weak results.
Given the long-tail nature of casualty business, KBW believes such an outcome is unlikely to become evident for at least several years.
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