What is cat property? Why rates in cat property declining?

CAT property (short for catastrophe property) is insurance coverage specifically designed to protect physical assets—like commercial buildings, real estate portfolios, and infrastructure—against severe, widespread natural disasters.

Standard commercial property insurance policies typically exclude these massive risks because a single event could bankrupt an insurer. Therefore, businesses must buy specific CAT property coverage for perils like:

• Hurricanes and coastal windstorms
• Earthquakes
• Floods
• Wildfires

Because the risk is so concentrated, these policies are usually written in the Excess & Surplus (E&S) market, which is regulated differently and allows insurers to take on high-risk, volatile policies.

Why are CAT property rates declining?

The insurance industry is highly cyclical. For several years leading up to 2024, CAT property was in a severe "hard market"—meaning rates were skyrocketing, capacity was scarce, and underwriting standards were incredibly strict.

Currently, rates are dropping (often by 15% to 35% on top-tier risks) because the market cycle is softening. This is being driven by four main factors:

1. A Flood of Alternative Capital

Because rates were historically high over the last few years, institutional investors saw an opportunity for massive returns. Billions of dollars in alternative capital—specifically via Catastrophe Bonds (Cat Bonds) and Insurance-Linked Securities (ILS)—have poured into the market. With more capital competing to insure the same amount of risk, underwriters have to cut their rates to win the business.

2. Structural Changes in Reinsurance

Reinsurers (the massive financial entities that provide insurance to the primary insurance companies) dictate global pricing. A few years ago, reinsurers got tired of paying out for medium-sized severe weather. They forced primary insurers to raise their attachment points—meaning the primary insurer now has to absorb a much larger share of the initial losses before the reinsurer pays a dime. Because reinsurers are now insulated from smaller, high-frequency storms, their capital is safer, allowing them to drop rates on those higher layers of risk.

3. Record Profitability

Thanks to those high rates and higher attachment points, global reinsurers and E&S carriers posted record profits over the last couple of years. Flush with cash and healthy balance sheets, they are now aggressively deploying that capital to defend or grow their market share, which drives prices down.

4. Absence of a "Capital-Wiping" Event

While the world continues to see severe weather and devastating localized events, the insurance industry has recently avoided a "capital-wiping" mega-catastrophe—such as a $100+ billion Category 5 hurricane scoring a direct hit on a dense metropolitan area like Miami or a massive earthquake in Los Angeles. Without an event large enough to drain the industry's collective reserves, capital continues to pool, keeping rates depressed.

To explore the mechanics of this market further: