Aon has provided insights into the mid-year 2024 reinsurance renewal, indicating a return to stable market conditions in Australia and New Zealand following challenging renewals the previous year.
The mid-year period is said to be crucial for reinsurance renewals in Australia and New Zealand, with approximately 80% of property catastrophe reinsurance renewing on June 1 and July 1, including the New Zealand state-backed natural hazard insurer EQC Toka Tū Ake.
According to Aon, the resetting of the property catastrophe reinsurance market in 2023 and relatively mild catastrophe losses over the past 12 months facilitated a more predictable renewal process for mid-year 2024, with reinsurers showing renewed interest in catastrophe risk in the region.
Aon reported that the capacity at mid-year 2024 was sufficient to meet the demand from insurers in Australia and New Zealand. Programs broadly renewed on the same terms and conditions, with retention levels remaining unchanged. Pricing was expected to be flat on a risk-adjusted basis, with some insurers experiencing reductions in the low single digits.
Reinsurance capacity at the mid-year renewal was ample, with the market showing an increased willingness to deploy capacity for property catastrophe risks at current structures and pricing. In 2023, capacity was somewhat constrained, especially for lower layers.
Aon noted that this renewal saw capacity readily available across the board, with reinsurers more willing to support lower layers in addition to the top of programs. Aon anticipates further growth in appetite for catastrophe risk in 2025, barring significant losses.
Reinsurance demand remained stable at the mid-year renewal, with increased purchasing in line with portfolio growth and inflation. The implementation of the state-backed Australian cyclone reinsurance pool in 2023 tempered demand for property catastrophe reinsurance by AU$3 billion to AU$4 billion.
Large insurers with gross written premiums (GWP) for Householders class of AU$300 million joined the cyclone pool in 2023, while smaller insurers with GWP under AU$300 million have until Dec. 31, 2024, to join. Aon reported that the pool is now well understood by the market and integrated into insurers' catastrophe programs.
Catastrophe losses over the past 12 months have been relatively mild compared to recent years. The largest insured loss in the 2023/24 period was the AU$1.3 billion Christmas and New Year storms, which affected Queensland, New South Wales, and Victoria.
Losses from these storms, along with those from Tropical Cyclone Jasper (AU$354 million), were largely borne by insurers due to higher net retentions imposed during the 2023 renewals.
In January and February 2023, New Zealand insurers recorded their most costly weather events on record, with two back-to-back billion-dollar-plus loss events occurring within three weeks of each other.
Aon noted that these events coincided with the resetting of the global property catastrophe market, leading to significant program and rate adjustments at the 2023 mid-year renewal. Over the past year, the market has stabilized, and insurers have demonstrated their learnings and how they are managing these risks.
New Zealand’s state-backed natural hazard insurance scheme EQC Toka Tū Ake purchased nearly NZ$1 billion of additional reinsurance, securing a record level of NZ$9.2 billion on June 1, 2024. This demonstrates strong market confidence in the scheme and the appetite for New Zealand earthquake risk.
Aon observed that while reinsurers are more willing to support lower layers, the market’s appetite for traditional aggregate reinsurance covers remains limited. However, alternative solutions are being more readily discussed.
Some reinsurers have been exploring how to make aggregate covers available via structured solution options during mid-year renewal discussions, with interest expected to grow over the next year.
Capacity and commissions increased for whole account quota share business at mid-year, with growing interest from both domestic and overseas markets, attracted by the strong underlying rate in the primary property market.
Capacity for per risk reinsurance was adequate to meet supply, although this segment is under more scrutiny from reinsurers following global losses in recent years. Attachment points for per risk contracts increased slightly, reflecting exposure growth and inflation.
Supply and demand for casualty reinsurance in Australia remained broadly stable at the mid-year renewals, with accounts renewing on the same terms and rates. Aon noted that PFAS continued to be an area of focus for reinsurers, who want to understand insurers' strategies for addressing potential exposures to these chemicals.
What are your thoughts on this story? Please feel free to share your comments below.
