As per reinsurance broker Howden Re, capacity within the retrocession market was more than sufficient to meet demand at the January renewals, largely due to a combination of retained earnings for insurance-linked securities (ILS) and rated carriers, as well as ILS inflows, and new entrants.
In addition, the loss environment also remained manageable, as Howden Re highlighted that the Los Angeles wildfires in January 2025 affected a small number of programmes and impacts potentially mitigated by expected subrogation recoveries.
“Buyers explored the purchase of up to US$800 million of additional limit at 1 January 2026, driven by efforts to reduce net retained exposures, growth in underlying portfolios and capital model adjustments following catastrophe model changes. In a market with total capacity of approximately US$20 billion, this represents a significant uplift in demand,” Howden Re explained.
Adding: “Healthy supply levels drove price softening at 1 January 2026, with risk-adjusted pricing falling by 12.5% to 21%, with an average reduction of 16.5%. Outcomes varied widely depending on coverage, scope, attachment points and underwriting profitability.”
The broker also said that changes within pricing were most pronounced at higher excess of loss layers, which reflects increased supply from ILS funds.
Against a backdrop of surplus capacity, retrocession signings were affected by the origin of the supply. Well-established lead markets generally utilised cross-class client relationships to obtain signings, whereas ILS funds, especially those concentrating on tail-end catastrophe risk, faced participation sign-downs.
Howden Re also highlighted how there was minimal movement on coverage terms, with retrocessionaires typically unwilling to broaden coverage to include non-natural perils such as SRCC and terrorism, despite interest from buyers.
“Having completed their core capital protection at a discount at 1 January 2026, several buyers are now expected to explore opportunities to add earnings protection over the course of the year. This demand will be met with increased appetite by retrocessionaires, particularly as aggregate products (now structured differently from those seen in previous soft markets) offer opportunities for more bespoke structures following significant changes in underlying portfolios,” Howden Re said.
The broker also explained that demand for property retrocession is expected to be concentrated amongst larger buyers looking to leverage the attractive economics available during the softening phase of the pricing cycle.
Key products including aggregate stop loss, top-and-drop structures and multi-class aggregates offer buyers effective tools to lock in profits and manage earnings volatility more efficiently.
“These benefits are expected to filter through the supply chain, as reinsurers’ strategic use of such covers enables them to offer frequency protection to their underlying treaty clients, helping to unlock much-needed growth and market share in a softening market environment,” Howden Re concluded.
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