Aon has released its “Ultimate Guide to the Reinsurance Renewal – September 2024” report, highlighting the contrast between the strong financial results of the reinsurance industry and the challenges faced by insurers amid rising losses and more complex risks.
The report emphasizes the industry's potential for growth, noting that the global insurance premium to gross domestic product (GDP) ratio has remained around 1.8% since 2010. This is despite an increase in exposures and unmet client demand, signaling potential areas for expansion.
In the first half of 2024, natural catastrophe re/insurance payouts totaled $58 billion, significantly higher than the decadal average of $47 billion. Despite these payouts, reinsurers recorded an average return on equity (ROE) of 17.6% during the same period.
Aon's analysis of 100 global re/insurers found that some of the largest players reported ROEs exceeding 25%, outperforming many primary insurers and surpassing their own cost of capital. This strong financial performance could drive further growth.
However, the report points to uneven profitability across the insurance value chain. Higher retentions in insurers’ catastrophe programs have limited capacity for frequency covers, leading to an unequal distribution of underwriting profits.
Global reinsurer capital reached a record $695 billion as of June 30, 2024, an increase of $25 billion from the end of 2023. This rise was mainly driven by retained earnings, increased inflows into the catastrophe bond market, and recovering asset values.
A survey of re/insurers showed average annualized investment yields of 3.8% in the first half of 2024, up from 3.1% in the previous year.
Reinsurance pricing has begun to decrease gradually in 2024, partly due to a rise in alternative capital, which reached $110 billion. Reinsurers have also granted rate reductions for top-performing risks. Aon predicts that competition in pricing will increase in 2025, giving insurers more flexibility in terms of capacity and coverage.
Rupert Moore (pictured above), UK CEO of Reinsurance Solutions for Aon, commented that the reinsurance market must take a more proactive role in managing frequency losses and earnings volatility. If reinsurers continue to avoid risk, insurers may follow suit, shrinking the industry's relevance.
Moore stated that Aon's role is to bring clarity and confidence to risk management, helping to shape better decisions and highlight opportunities for profitable growth.
The report also highlights the volatility experienced by re/insurers in 2024, driven by diverse events such as earthquakes and airline losses in Japan, the Baltimore bridge collapse in the US, severe flooding in Dubai, and a global computer outage at CrowdStrike.
According to Moore, these events underline recurring themes for the industry, including the increasing interconnectivity of risks, loss volatility, and the growing gap between insured and economic losses.
The industry must either adapt to the opportunities presented by shifting risks or risk seeing a greater portion of that risk absorbed by the public sector and capital markets.
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