KBW expects at least 10% cut in Jan. 1 cat reinsurance rates

Property catastrophe excess-of-loss reinsurance rates are expected to fall at least 10% at the Jan. 1, 2027 renewals, a smaller decline than at the January and June 2026 renewals, according to KBW. Excess-of-loss cover pays once an insurer's catastrophe losses pass a set threshold. Insurance Business America reported the forecast.

AM Best put 144A property catastrophe bond issuance at a first-half record of $17.3 billion in 2026, and KBW said catastrophe bonds are adding to the competition. The bonds are sold to institutional investors under the US Rule 144A exemption, and the first-half figure is the largest AM Best has recorded for that period.

A 10% cut at Jan. 1, 2027 would follow the reductions KBW cites at the January and June 2026 renewals, so the same limit of cover is likely to clear lower again. For an allocator holding catastrophe risk, that suggests the spread on offer covers the same modelled loss for less unless terms change, and the diligence question moves to process: how the cedent tested its main vendor model against an independent one before setting the rate.

Over the past two years Moody's and Verisk, the two dominant model vendors, have opened their platforms to models built on Oasis Loss Modelling Framework's open-source framework. Dickie Whitaker, chief executive of the London-based framework, said a firm using either vendor can ask for an Oasis-based model and run it through Moody's Intelligent Risk Platform or Verisk's new platform. “Some of the barriers have been reduced because it's easier to deploy these models,” Whitaker said.

Roughly 90% of insurers and reinsurers run one main model for pricing, risk assessment and risk appetite, Whitaker estimated. They then compare it against views they build themselves or obtain from brokers and consultants. That applies to major perils, he said; practice for minor perils may differ.

Regulators and rating agencies encourage that consistency. “What they don't want is we buy reinsurance with one model and we price insurance with another model,” Whitaker said. Reinsurers adjust the main model's output toward their own view of risk, changing the event sets — the catalogue of simulated catastrophes a model runs — and the frequency of those events, and adding loads for loss adjustment expenses. “There's no such thing as the right answer. There is a range of answers of which a model will produce one,” he said.

KBW added that actual January pricing usually comes in worse than the expectations set at the Monte Carlo meetings each September, which, if it holds, implies a cut deeper than 10%.