TD Cowen, an investment bank and financial services firm, shared key observations from recent meetings in London with reinsurance market participants.
The firm reported that property-catastrophe rates are expected to continue softening, with estimates centred on declines of roughly 5–10% in 2025 and at the higher end of this range in 2026.
Despite this moderation, TD Cowen emphasised that companies still view the market as profitable, describing it as “good” and capable of generating solid returns.
According to TD Cowen, Howden characterised the current environment as a stage of “hard market softening,” noting that while profitability remains attractive, returns are trending lower than in 2023 and 2024.
One reinsurer told TD Cowen that firms can likely maintain returns above their cost of capital for several more years, though the gap is expected to narrow over time.
TD Cowen highlighted that reinsurers are largely holding firm on terms and conditions even as risk-adjusted pricing eases. Nominal attachment points are stable, but inflation is creating incremental pressure.
One company told TD Cowen that this discipline may not be sustainable across the cycle, particularly if supply begins to outstrip demand, though the firm noted that such a shift has not yet occurred.
A key factor preventing sharper price declines, according to TD Cowen, is the relatively limited amount of new capital entering the sector. Howden estimated approximately $35 billion of inflows—around 7% of industry capital—since 2022. TD Cowen pointed out that this is well below the more than $40 billion (15%+ of industry capital) added following 9/11 and Hurricane Katrina.
Aggregate covers remain scarce, though TD Cowen reported that some companies expect a gradual increase. Despite recent declines, property-catastrophe reinsurance is still producing returns in the mid-20% range, down from over 30% two years ago. TD Cowen emphasised that the opportunity remains appealing, but companies are reluctant to expand aggressively because competitors continue to pursue business.
TD Cowen added that a shift to lower interest rates could accelerate the pace of alternative capital entering reinsurance markets through catastrophe bonds and other insurance-linked securities.
The firm noted that most new capital since 2022 has entered through such vehicles, though executives view third-party capital as secondary to strong expected earnings in 2025 as a driver of further rate declines.
On casualty reinsurance, TD Cowen observed varied perspectives. One company told the firm it sees casualty reinsurance as a better way to access casualty risks than primary markets, especially in specialty lines. Another indicated a preference for primary casualty due to greater control and reduced reliance on cedants.
Casualty reinsurance rates were described to TD Cowen as broadly stable, with slight softening at the margins. The firm noted that ceding commissions have not moved materially, allowing reinsurers to benefit from primary insurers’ rate increases.
One company summarised the approach by stating, “In casualty reinsurance, you underwrite the underwriter,” underscoring the emphasis on the underwriting discipline of cedants as the foundation for reinsurance decisions.
