With climate change contributing to more frequent, moderate-loss events, insurers are adopting multi-year spread-loss (MYSL) contracts to distribute catastrophe costs across multiple years, according to a Gallagher Re whitepaper.
The approach offers resilience to single-year shocks from storms, floods, and wildfires.
The paper, Smooth the Spikes, explains that MYSL structures are increasingly being used as alternatives to conventional annual reinsurance, particularly as insurers face rising volatility from weather-related and other loss events. These structured arrangements, popular in Europe and established in APAC, are now gaining traction in the U.S. market.
MYSL solutions, sometimes known in the US as “Cat 32” programs, are non-proportional covers that can take the form of working layer excess-of-loss, aggregate, or stop-loss agreements. They enable insurers to spread the cost of retained losses over time, providing what the report calls “time diversification and risk financing.” In practice, they combine elements of self-financing with the potential for profit commissions that often exceed 50% of the premium when actual loss experience is favorable.
Under this model, insurers may pay slightly higher upfront premiums, but those costs facilitate partial self-financing of the coverage layer. Cedants have the option to cancel and commute the treaty at the end of a loss-free year, crystallizing a profit commission and often reducing the total cost compared with a one-year renewal. In years with losses, the terms and capacity remain locked in, helping prevent price increases typically associated with annual reinsurance renewals.
According to Gallagher Re, MYSL structures proved useful during the hard market that began in 2020, when capacity for traditional aggregate reinsurance became constrained. Even as supply has returned, capacity for lower-attachment aggregate coverage – below a one-in-20-year probability – remains limited. The report notes that insurers continue to use structured alternatives to help manage attritional losses where conventional coverage is scarce or costly.
The whitepaper includes an example of a three-year MYSL layer of $50 million excess of $150 million, with a 28% rate-on-line and an annual premium of $19 million. Under the illustration, the structure provides an annual limit of $100 million and a term limit of $200 million, along with a 100% profit commission less reinsurer margin and paid losses, payable upon cancellation.
Gallagher Re said that structured programs have demonstrated relative stability during disruptive events such as COVID-19, severe convective storms, European flooding, and Australian wildfires. Since these are generally single-year occurrences, their impact can be absorbed within multi-year contracts without significantly affecting reinsurers’ capacity or pricing.
The study also found that companies managing volatility effectively tend to achieve lower implied costs of equity and more consistent valuations, based on an analysis of major insurers including AIG, Allianz, Chubb, and Zurich. MYSL and other structured solutions, the report noted, can therefore serve as instruments for earnings stability and predictable dividends, especially for carriers exposed to more volatile commercial and specialty lines.
Gallagher Re concluded that as market conditions evolve and insurers continue to face weather-driven volatility, structured reinsurance such as MYSL may remain an option for managing retained risk and supporting balance-sheet stability.
Would multi-year structured covers serve as a practical long-term approach to control earnings volatility in your portfolio? Share your thoughts in the comments.
