SMAR Daily Industry News

Reinsurers Gain Modeling Flexibility Ahead of 2027 Renewals

Reinsurers preparing for the January 1, 2027, renewals are encountering a softening market environment alongside improved access to diverse risk assessment tools. Industry analysis from KBW suggests that property catastrophe excess-of-loss reinsurance rates could decline by at least 10% during the upcoming January renewals. This anticipated reduction follows a period of record-breaking activity in the catastrophe bond market, where 144A property catastrophe bond issuance reached $17.3 billion in the first half of 2026.

Amidst these pricing pressures, the technical process of evaluating risk is becoming more flexible. Dickie Whitaker, chief executive of the London-based Oasis Loss Modelling Framework, notes that major model vendors Moody’s and Verisk have increasingly opened their platforms to models built on Oasis’s open-source framework over the last two years. Users of these platforms can now integrate Oasis-based models into workflows alongside established vendor offerings. For instance, Moody’s is integrating Oasis SaaS into its Intelligent Risk Platform, potentially providing users access to over 300 Oasis-based models alongside more than 400 Moody’s RMS models.

Despite this increased accessibility, the core approach to risk assessment remains centralized. Whitaker estimates that approximately 90% of insurers and reinsurers rely on a single primary model to drive pricing, risk appetite, and assessment decisions. These firms typically compare their main model against alternative views obtained from consultants, brokers, or internal research. This consistency is often encouraged by rating agencies and regulators, who prefer that companies do not use disparate models for pricing insurance and purchasing reinsurance.

To manage these evaluations, reinsurers often employ small research teams—frequently staffed by seismologists or meteorologists—to adjust model outputs. These teams modify event sets, frequency assumptions, and adjust for market cycles, climate trends, and loss adjustment expenses. Oasis is currently developing model evaluation standards to streamline the time these teams spend extracting data from various vendors, aiming to standardize information formats.

While adoption of new technology remains challenging due to compliance, security, and privacy requirements, the appetite for sophisticated modeling varies by buyer type. Managing general agents often integrate modeling directly into underwriting, while reinsurers—who face different regulatory scrutiny than primary carriers—maintain more freedom to experiment with different modeling approaches compared to primary insurers, who are often anchored to specific approved models in states like Florida and California.

Why it matters

The integration of open-source modeling frameworks allows reinsurers to better diversify their risk views, which is critical as they navigate softening rates and increased competition from the catastrophe bond market.

FAQ

What is the expected trend for property catastrophe excess-of-loss reinsurance rates on January 1, 2027?
KBW expects these rates to fall by at least 10%.

How has the accessibility of risk models changed for reinsurers?
Over the past two years, major vendors like Moody’s and Verisk have opened their platforms to allow the integration of models built on the Oasis open-source framework.

What is the primary role of research teams within reinsurers regarding risk models?
These teams, often composed of meteorologists or seismologists, decide which models suit specific uses and adjust the model's output to reflect the firm's own view of risk, including climate trends and loss adjustment expenses.

Source: Insurance Business America. See the original source for full details.