Renewals saw reinsurers keen to deploy capital, buyers focused on banking savings – Gallagher Re’s Kerton

Ian Kerton, UK CEO at Gallagher Re, emphasises that the mood among reinsurers continues to be shaped by the sharp turn in the cycle experienced after the end of 2022.

Kerton (pictured) spoke to GR to make sense of some of the motivations behind the headline figures observed at the 1 January reinsurance renewals.

Despite attention on certain parts of the market – US casualty, but also frequency perils such as storms and wildfires, and specialty lines such as aviation war – the overall claims ledger has presented a relatively rosy picture for reinsurers.

Those three good years have led reinsurers to deploy more capital and tolerate significant softening at renewals, subject to some ongoing caveats, not least their continued US casualty caution.

“For a long period of time, reinsurers were struggling to make their cost of capital, let alone anything above the cost of capital,” he said.

Reinsurers responded by raising attachment points and tightening terms and conditions, which “certainly reduced their exposure” and moved them away from “attritional” levels of catastrophe loss retained by the primary markets.

“If you look at 2025 we were seeing the same thing, and that has led to an estimated 17-18% figure for reinsurers’ return on capital.”

That relative safety net has driven reinsurer confidence but created a different kind of pressure around capital management.

“Because reinsurers have, generally speaking, had three such profitable years, and effectively seen their own capital basis materially growing, and you get pressure from stakeholders to utilise that capital, or otherwise to give it back [to investors].”

Banking savings rather than buying more cover

Kerton said this backdrop also helped explain why many cedants had prioritised cheaper programmes rather than trying to reduce their net risk at 1 January.

“This renewal was very much one which was about price and by and large, cedants banked those savings that they were making, rather than reducing the risk on their balance sheet, by buying more reinsurance.”

He linked this to primary market insurance rate adequacy and stronger comfort with higher retentions after several years of structural reset.

“Although cedants’ underlying books have started to soften in a number of areas, they’re technically still in a pretty good place,” he said.

The next phase could be about whether, and when, buyers start trading some of their savings for increased protection, assuming prices continue to soften further.

“It’s true that we have started to see the return of aggregate covers,” he said.

Such protections are often viewed as a soft market bellwether for cedants seeking reinsurance as balance sheet protection, rather than as a core protection for capital and solvency.

Kerton is less sure the market has reached a level for such covers to be more commonplace.

“I’m not sure we’re quite there yet, but I think we’re getting close to that.”

Casualty ‘tale of two parts’

Kerton’s remit spans the UK P&L within Gallagher Re, including classes such as global casualty, cyber, marine, aviation, political violence, credit and surety, and other specialty lines.

Looking at the Lloyd’s market, he pointed to the security provided by its ratings and fresh capital inflow observed as supportive of reinsurance ambitions.

“What we’ve seen is an inflow of capital into Lloyd’s in the last few years, and broadly the syndicates that are coming in are looking to write more reinsurance,” he said.

For casualty reinsurance business underwritten in the London market, Kerton argued that the market view continues to be a dichotomy between North America-exposed business and non-North America-exposed business.

“The casualty market has definitely been a tale of two parts, and it continues to be so,” he said.

Reserving and settlement speed in the US can distort early signals within this long-tail market, he observed, keeping reinsurers cautious until the data available can support a different view.

“So much of casualty is data-based, and people like to see strong evidence in the data and in the results before they’re prepared to change their pricing view,” Kerton added.

“We have been working with our clients to provide bespoke information to differentiate performance, and give reinsurers additional comfort around reserving patterns.”

By contrast, he concluded that reinsurers have been “very comfortable” with international casualty dynamics, comfort that has helped drive sharper softening than for US-exposed business.