A new reinsurance report from Aon highlights the state of the market following the April 1 renewals, with the broker believing the supply-demand dynamic is reaching a tipping point.
The recent renewal period, a pivotal moment for the industry particularly in Asia, mirrored the positive adjustments seen at the start of the year, marking a steady progression towards a more stable and comprehensible market landscape for 2024 and beyond.
Aon noted that this period is crucial as approximately 60% of Asia’s treaty business, including significant catastrophe programs in Japan and substantial portfolios in South Korea, China, and India, come up for renewal.
According to the brokerage’s report, the global reset in property catastrophe pricing and retention levels that characterized the challenging renewals of 2023 has led to more predictable outcomes in the recent cycle, generally benefiting reinsurance buyers. In Japan, the trend has continued from the US January 1 renewals with flat to slightly reduced pricing.
In a similar vein, competitive forces have intensified in South Korea, China, and India, though varying degrees of market pressure remain.
Despite the overall favorable conditions for property catastrophe reinsurance, some markets in the Asia-Pacific region are facing a tightening of terms and conditions. This is particularly evident in sectors like property per-risk reinsurance and industrial fire accounts, and in regions previously affected by natural catastrophes or US-exposed casualty treaties.
From a broader perspective, the reinsurance market since January 1 has seen a shift favoring buyers, with a significant increase in available capacity, driven by attractive risk-adjusted returns for property catastrophe reinsurance.
As of the end of 2023, total reinsurance industry capital stood at $670 billion, near peak levels observed in 2021, bolstered by strong results and recovery in asset values, alongside a record year in the catastrophe bond markets.
Despite global natural catastrophe insured losses totaling $118 billion in 2023 — a continuation of losses exceeding $100 billion annually — many reinsurers reported strong results. This reflects a structural change in the market, with cedants taking on higher retentions. Early analysis shows that global reinsurers reported an average combined ratio of around 90% for 2023 and an average return on equity of about 18%, marking some of the sector’s best results.
The property catastrophe market globally is in a transition phase, with reinsurers focusing on growth and competing for higher catastrophe layers. This competition is expected to maintain downward pressure on pricing and encourage broader coverage terms, although reinsurers are holding firm on retention levels.
Looking ahead to the mid-year renewals, which impact catastrophe-exposed markets like Florida, Australia, and New Zealand, the industry anticipates continuing the positive trend from earlier in the year, with adequate capacity and competitive pricing expected.
Aon noted that the US market might see up to $7 billion in additional demand for property catastrophe limit at these renewals, driven by inflation and evolving risk perspectives, and a revitalized market in Florida.
As the industry moves past the challenges of 2023, insurers continue to seek solutions that stabilize earnings, such as structured solutions and aggregate covers. At the April 1 renewals, reinsurers showed increased flexibility, providing insurers opportunities to leverage the competitive environment to secure comprehensive protection across their programs.
For regional insurers, particularly those renewing on January 1, the remainder of the year will be crucial. These insurers are adapting to the increased frequency of natural catastrophes and higher net retentions by making significant adjustments in rates and portfolio structures. Aon continues to collaborate with these insurers to enhance their market positioning as conditions improve.
In a transitioning market that has seen favorable outcomes at both January 1 and April 1 renewals, Aon emphasized the importance of preparation and differentiation in achieving optimal renewal outcomes.
The firm also reiterated its commitment to supporting insurers over the long term, offering a broad range of solutions from access to third-party and alternative capital, strategic consulting, analytics, talent, and cyber resiliency.
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