Reinsurers foresee pricing slide accelerating amid European cat competition

The overwhelming impression at this year’s Baden-Baden reinsurance meeting was that pricing on European cat business will continue to fall at 1 January – but how far reinsurers will go to defend their shares remains to be seen.

Price reductions are being driven by an excess of supply in the cat market, particularly in Europe, where reinsurers look to diversify their cat books away from peak risk zones. The pattern of falling cat pricing has been seen at every major reinsurance renewal date this year.

Reinsurers will, however, employ different tactics depending on their broader relationships with cedants, and a degree of differentiation based on territory and loss experience is still anticipated.

Outside of the cat market, reinsurers’ drive for growth in specialty, and particularly cyber, was strongly evident, as carriers seek to deploy at least some of their retained earnings from 2023 and 2024 into different classes of business.

In casualty, meanwhile, sources at Baden-Baden told this publication that a broadly flat renewal is expected, regardless of noise from reinsurers around legal system abuse in some European countries.

Property: Competition for signings set to continue

Sources told this publication that with early submissions from key territories now received, it is possible to detect an acceleration of anticipated price decreases for 1 January 2026, jumping from single-digit cuts expected at Monte Carlo to double-digit reductions now forecast.

The key driver of this softening is the oversupply of reinsurance capacity, driven by reinsurers’ retained earnings and a benign hurricane season to date. While there is likely to be more demand for cat coverage – not least driven by exposure growth due to inflation – sources said this will be more than matched by supply across Europe.

Overall, reinsurers did not move to dispel this impression. Hannover Re executive board member Thorsten Steinmann stressed during the carrier’s Baden-Baden press conference that the current behaviour of the market is a “normal” cyclical reaction.

Reinsurers were keen to emphasise the strong margins on current cat treaties and the room this provides to give discounts, although naturally, this will depend to some extent on the loss experience of individual treaties.

From the buyers’ perspective, current market conditions are an opportunity to test the market around attachment points, expanded coverage and pricing without putting entire placements in jeopardy, sources said.

As one put it, competition among reinsurers to gain or maintain participations on cat treaties will mean that their panel selection “can be a conscious decision”, not just a matter of finding any available capacity.

Some cedants that did not push the envelope last year have been emboldened by the concessions secured by some larger buyers at the January 2025 renewal to push for more this year.

For some buyers, the modus operandi will be to secure the same coverage at a discounted rate, while for others, the softening environment is an opportunity to extend limits or try to secure a greater degree of frequency coverage at the bottom of programmes.

The appetite from reinsurers to write frequency covers is still in question, after the shift to attachment points successfully lowered reinsurers’ cat burden in recent years. Several reinsurance sources said they would entertain the idea – but only where cedants could demonstrate, with historic data, that these would not be hit year after year by normal cat loads.

Others said they would consider aggregate coverage only as leverage to secure participations on high layers on programmes.

There was also an expectation that reinsurers would leverage their broader relationships with cedants across multiple lines of business to defend their positions on cat programmes, with monoline cat underwriters less able to tolerate the more extreme price reductions.

Casualty: Limited concern around social inflation

Broadly, the expectation for casualty treaty is for a relatively flat renewal, although differentiation is once again expected for cedants with meaningful exposure to the US in their programmes due to continued concern around social inflation.

Both Swiss Re and Munich Re have drawn attention to the growing potential for social inflation in Europe due to EU legislative changes enabling more collective legal redress.

However, sources said this is not expected to develop into endemic legal system abuse across the continent, highlighting differing approaches to applying the EU directive in individual countries, as well as varying degrees of tolerance for litigation funding.

Cyber: Appetite on the rise across Europe

There was increased discussion of cyber business at Baden-Baden, driven both by reinsurers’ desire for diversifying classes in which to grow, and demand from regional insurers for support to begin offering cyber.

Sources said that large global composite carriers have so far cornered the market for cyber, mainly selling to larger companies – but there is appetite from smaller, country-specific carriers to begin competing in this arena.

Jen Braney, international head of cyber at Gallagher Re, described “frustration” among both insurers and reinsurers at the difficulty in drumming up demand for cyber coverage in Europe, voiced at a private client event during the conference.

Braney added that brokers and (re)insurers are working together to provide clients with a more detailed understanding of cyber risk.

Both CFC and Coalition Re are offering European carriers a white-label arrangement, in which they provide their cyber policies and risk mitigation tools to local insurers on the ground to distribute, backed by a 100% quota share reinsurance deal.

The growing appetite to write cyber comes despite continued rate softening in both primary and reinsurance, which some carriers are willing to tolerate given the relative immaturity of the market and their belief that demand will accelerate.