January 1st isn’t just the start of a new year — for many insurers, it’s the beginning of a fresh property treaty contract with reinsurers.
The agreement outlines exactly how much property insurance risk ceding insurance companies will transfer to reinsurers for the year ahead. It allows companies like Aviva to manage their exposures to large or catastrophic (CAT) losses, improve their financial stability, and ensure their capacity to underwrite new business.
Aviva works with reinsurance brokerage Guy Carpenter — both in Canada and the UK — to assess valuations, determine risks, and create a robust submission for reinsurers to bid on.
We asked Peter Askew, President and CEO of Guy Carpenter Canada to share highlights from this year’s January 1st property treaty renewal season and how they might affect commercial policyholders.
What were the expectations leading into the renewal season?
“At the beginning of 2024, the view in Canada was that terms and conditions for property and CAT were adequate and attractive among reinsurers. There was an expectation of a continued softening of pricing,” said Askew.
Then July 2024 ushered in the first of four CAT events in 25 days, including a devastating wildfire in Jasper, flooding in Montreal and the Greater Toronto Area, and a hailstorm in Calgary that produced the greatest number of hail losses in Canadian history.
All told, 2024 saw 12 CAT losses greater than $25 million each and totalling $8.4 billion. This differed from 2023, which saw a higher frequency at 26 events that totalled $3.4 billion and required very little reinsurance recovery since insurers retained a majority of the losses.1
“There was something like $4 billion in ceded reinsurance loss out of those four 2024 summer CAT events, a large proportion coming out of Calgary and Montreal,” said Askew.
“The massive volume of claims in a very short time made it difficult for reinsurers to get their arms around quantums. The market went from stable to decreasing in pricing very quickly and reinsurers began changing their view of risk, property contract structures, and the need for increasing prices,” said Askew.
He notes that, although reinsurers were responsive in providing claims for CAT programs and making sure payments were available for policyholders, there was no question these events would impact their 2025 pricing quotes.
How did the renewals ultimately develop?
Askew says they expected a wide range of pricing for each component of reinsurance programs. There are layers of risk in each segment — prices rise with risk and decrease the further they are from the probability of loss.
“There was a decent amount of clustering of pricing, more quotes per layer than we’d seen previously, and final pricing landed generally below the average quote per layer. The Bermuda and London reinsurers were more aligned with domestic markets in terms of price and capacity than in prior years,” he said.
“We already had attractive trading conditions in Canada and reinsurers wanted to participate and expand their participation in Canadian treaties.”
The Guy Carpenter and Aviva team were tasked with finding the lowest possible market clearing price from the complete roster of reinsurance pricing bids.
“Ultimately, we saw a lot of risk appetite amongst reinsurers. There was a downward pressure on pricing globally and an uplifting of pricing in Canada, but there was a very robust capacity to support those programs, which is encouraging,” said Askew.
“In reinsurance underwriting, emphasis will be on evaluating exposure (values at risk) and experience (claims history) to inform future pricing and policy terms. The reinsurance property renewal and its outcome will be one factor in determining insurance pricing for 2025 and beyond.”
Are there trends that would help risk managers prepare for the future?
Askew notes a few insights that it would be helpful for risk managers to be aware of in the coming years and that may affect their premium pricing.
Reinsurers will focus on accumulation management
Accumulation management in reinsurance is the process of monitoring and controlling the concentration of risk exposures within a portfolio to avoid excessive losses from correlated events, such as natural disasters. It helps reinsurers identify potential hotspots where multiple policies are exposed to the same risks — like properties concentrated in hurricane-prone regions — and take measures to limit their exposure.
“Among reinsurers, there’s going to be enhanced attention to accumulation management and taking steps to help them manage risk appetite. They will likely use limitations, pricing, and underwriting tools to make sure they’re creating a portfolio in line with their risk tolerance. For policyholders, sharing detailed exposure information with your broker and insurer will continue to be an important element of the overall insurance relationship.”
Increased density creates higher exposures, need for municipal risk mitigation
The 2024 CAT events demonstrated the extent of damage that weather-related disasters can cause to areas that are densely populated. For example, had the wildfires that devastated Jasper veered in a slightly different direction, the impact would have been significantly different in terms of loss.
“Where there are businesses, houses, and cars, there is exposure. As density continues to increase, there will be a strong emphasis on building and modifying infrastructure to mitigate risks, especially related to water,” said Askew.
Businesses must focus on risk mitigation
While the 2024 CAT events were especially destructive, Askew points out that commercial policyholders fared relatively well under the circumstances. “More than 80% of losses were personal line events.”
However, he says the increasing frequency and severity of losses is a clear sign to commercial risk managers to deploy loss prevention and risk mitigation measures for their own properties.
“Insurers and reinsurers are there to provide insurance protection and recovery to policyholders, but, with significantly increased exposures, it’s critical to take steps to prepare properties for weather events.”
For more information
Please speak with your broker or contact us on gcs.ca@aviva.com
Sources
1 https://www.ibc.ca/news-insights/news/2024-shatters-record-for-costliest-year-for-severe-weather-related-losses- in-canadian-history-at-8-5-billion
