Howden Re has highlighted a growing divide in risk perception between cedants and reinsurers, even as reinsurance pricing begins to soften following the hard market of 2023.
The firm expects rate decreases in the mid- to high-single digits for motor third-party liability and low double digits for property catastrophe following the Baden-Baden renewals. However, Howden Re states that these reductions do not address the underlying differences in how risk is evaluated and shared between parties.
Recent years have seen insurers taking on a larger share of natural catastrophe losses, with their portion rising from 54% in 2022 to 67% in 2024. According to Howden Re, this shift reflects a recalibration of reinsurers’ risk appetite and has resulted in cedants bearing more volatility that was previously distributed across the market.
“The future lies in reconnection. Not just between cedents and reinsurers, but between perception and reality, between risk and protection,” said Tobias Andersson (pictured above), head of Continental Europe, Howden Re International.
The firm’s latest report identifies three areas where the disconnect is most evident: retention covers, motor third-party liability (TPL), and subsidence. In retention covers, protection against high-frequency, medium-severity losses – such as aggregate covers – has contracted significantly.
More than 60% of aggregate covers were not purchased or renewed between 2020 and 2025. This reduction comes as secondary perils, often linked to climate change, become more frequent.
Howden Re attributes reinsurers’ reluctance to limited historical data and uncertainty about the return periods for severe events, including recent hailstorms in France and Italy.
The impact of catastrophe losses on the market’s risk appetite was underscored earlier this year when the Los Angeles wildfires became the largest single loss event for reinsurers since 2011. This event, along with other significant losses, has reinforced the delicate balance between risk and capacity that reinsurers must manage as they respond to shifting exposures and volatility.
In the motor TPL segment, inflation sensitivity and long-tail risks continue to complicate alignment between cedants and reinsurers. Judicial trends, rising medical costs, and social factors add to the uncertainty. Traditional indemnity structures place inflation risk primarily on reinsurers, leading to conservative pricing.
Howden Re suggests that parametric payout models, which are tied to disability rates and age profiles, can help cedants retain their own inflation assumptions and influence pricing more directly. These models also offer clearer insight by allowing comparison between parametric outcomes and actual indemnity payouts.
Subsidence, particularly in France, is another area of divergence, with reinsurers reducing their appetite due to limited data and greater climate-driven volatility. Subsidence now represents 52% of natural catastrophe perils over the past decade, compared to 41% over the previous 40 years.
Howden Re points to parametric structures as a way to set measurable environmental triggers and reduce uncertainty in claims development.
These market shifts are also being shaped by new sources of capital. Since 2022, roughly US$35 billion in new capital has entered the reinsurance sector, much of it through insurance-linked securities.
This influx has provided additional capacity but has also introduced new complexities, as investors and alternative structures play a larger role in shaping pricing and coverage terms.
