KBW, an investment banking and financial services research firm specializing in the insurance industry, said the mid-year catastrophe reinsurance renewal environment was more challenging for sellers, with pricing down nearly 20% to 15%, particularly for Florida-focused business, while terms and conditions (T&Cs) were seen to remain largely unchanged.
This conclusion follows a semi-annual trip to Bermuda where KBW analysts meet with reinsurance executives to discuss market conditions and prospects.
KBW notes that while property and property catastrophe reinsurance rates continue to soften, a more important development across the market is that the tougher terms and conditions introduced during the 2023 hardening cycle remain largely unchanged, although a series of smaller concessions are starting to emerge.
According to KBW, market discipline is underlined by reinsurers showing a greater willingness to accept lower pricing rather than reverse the structural changes identified at renewal on January 1, 2023.
However, the company said incremental adjustments to terms and conditions are increasingly part of negotiations and are starting to impact market conditions in general.
Adjustments highlighted by KBW include changes to the minimum premium adjustment provision, which now allows premiums to be adjusted in both directions based on changes in risk levels. Under the revised methodology, the cost of an insurer’s reinsurance program can now be reduced accordingly if its year-end exposure is lower than the 6/1 assumption at renewal.
KBW noted that previously, contracts only allowed premiums to increase when exposure increased, not decrease when exposure declined. The company added that the minimum and maximum parameters are typically kept around 80% and 120%.
The company also noted that reinsurance premiums in Florida are increasingly being paid in quarterly installments rather than fully upfront, a move it said creates additional counterparty risk. Elsewhere, retrocession coverage has expanded from “named hurricanes and earthquakes” to “named natural disasters”, while aggregate, laminated caps and topping and drop structures are also becoming more widespread.
KBW noted that these structures never really disappeared from the market, but previous pricing levels effectively suppressed demand from ceding companies. KBW also said they were still generally not seen as providing pure revenue protection for insurers. Furthermore, the research firm highlighted that only modest changes were made to hour clauses and radius definitions, while observing that changes were very limited in terms of coverage of strikes, riots and civil disturbances (SRCC) and terrorism.
In terms of pricing, KBW estimates that overall risk-adjusted declines in real estate disaster renewals will average around 20% during the year. The company said it heard ranges including “15-20%, 17.5-20% and 20% or higher,” with market participants often saying results were trending towards the upper end of those ranges. KBW said the travel direction is consistent with developments between the January 1 and April 1, 2026 renewal periods, noting that approximately 85% of renewals in Florida have been completed.
KBW divides the June 1 and July 1 renewal seasons into three broad categories. Florida, where renewals occurred mainly on June 1, was said to be down 17.5% to 20%. Nationwide plans, which more commonly renew on July 1, are also said to be down 17.5% to 20%. Meanwhile, retrocession business is reported to be down around ten per cent year-on-year on the back of strong demand, although less customized retrocession business is said to have seen a steeper decline.
The company added that some market participants have compared current pricing levels to those in 2021 and 2022, which are still considered sustainable and remain well above the market lows experienced in 2017.
In terms of demand, KBW said most catastrophe reinsurance buyers have chosen to retain savings from lower reinsurance costs rather than purchase additional limits or lower attachment points, which have remained broadly stable. One exception is the increase in demand associated with the depopulation process that citizens have largely completed.
At the same time, KBW noted, some reinsurers are purchasing additional protection on their own, including adding retrocession coverage and, in at least one case, purchasing attractively priced catastrophe bonds aimed at managing tail risk more effectively.
Discussing the Florida market, KBW said industry confidence in the effectiveness of litigation reform measures is improving. Even so, market participants generally believe it is still unlikely that large national insurance companies will re-enter Florida in a meaningful way due to concerns about the impact of catastrophic risks on stakeholders. As a result, KBW said it expects Florida to remain a specialty market dominated by specialty regional insurers, with the company taking a positive view on publicly traded homeowners insurers such as AII and SLDE.
