Reinsurance Market Shows Positive Trends, Increased Competition

Amid increased competition and capacity, the April 1 reinsurance renewals signal a more predictable market, with competition for higher catastrophe layers, according to a report by Aon.
By: | April 3, 2024

Insurance companies saw better deals when renewing their reinsurance contracts on April 1, thanks to more competition among reinsurers and plenty of available coverage capacity, according to a report from insurance broker Aon. The report says this trend lays the groundwork for a reinsurance market that will be easier for insurers to navigate at midyear and heading into 2025 compared to the challenges faced in recent renewal periods.

The April 1 renewal was particularly significant for Asia, with about 60% of the region’s treaty business renewing on this date. This included some of the world’s largest catastrophe programs in Japan, along with substantial portfolios in South Korea, China, and India. Following challenging renewals in 2023, which resulted in a global reset in property catastrophe pricing and retention levels, the recent renewal was more predictable and generally favorable to reinsurance buyers.

The reinsurance industry has seen a dramatic shift in supply, resulting in ample capacity driven by attractive levels of risk-adjusted returns for property catastrophe reinsurance. Total reinsurance industry capital at year-end 2023 stood at $670 billion, close to the peak levels last seen in 2021. This was driven by strong results, recovery in asset values, and a record year for catastrophe bond markets.

Natural Catastrophe Impact

Despite global natural catastrophe insured losses totaling $118 billion in 2023, many reinsurers reported strong results for 2023, reflecting the structural change in the market with cedants bearing higher retentions. Global reinsurers reported an average combined ratio of around 90% for 2023 and an average return on equity of around 18%, representing one of the sector’s best ever results.

Preliminary global catastrophe losses in the first quarter of 2024 are estimated to reach at least $11 billion, with additional loss development expected. This figure is notably lower than losses in the first quarter of 2023, which reached $30 billion, Aon noted.

U.S. Outlook

The U.S. property catastrophe reinsurance market is showing signs of favorable pricing and increased capacity, with expectations of a significant uptick in demand for property catastrophe capacity at mid-year renewals.

Several large national and global insurers renewing in April found pricing to be favorable, with adequate capacity available. Some insurers even opted to purchase significantly higher limits. This positive trend, observed at the start of the year and again in April, is expected to continue at mid-year, with signs of greater price competition.

The market is also witnessing early renewal discussions for a significant number of U.S. mid-year renewals, with reinsurers ready to provide indications and lock in capacity. There is a broad desire among catastrophe reinsurers to write larger lines in 2024, and supply will be available for insurers looking to purchase additional limit.

Reinsurance capacity for property catastrophe risk in Florida is set to return and expected to meet increased demand at mid-year renewals. Catastrophe bond activity for Florida property carriers is also at record levels, Aon said.

The report also suggests an improving outlook for regional insurers. Faced with higher net retention levels, U.S. insurers are implementing fundamental changes to their underlying portfolios, including rate adjustments, changes to deductibles and coverage, and risk selection. As reinsurers continue to acknowledge and respond to the portfolio, underwriting, and structure enhancements made by U.S. regionals, the overall market for the segment will continue to stabilize.

“Pricing improvement and enhanced consistency on terms is expected to continue heading into mid-year renewals,” the report stated. “There is also an openness among a growing number of reinsurers to consider supplemental covers absent in 2023, and an acceptance that insurers will push to standardize terms when allocating lines.”

The report concludes that the current market conditions present attractive opportunities for reinsurers to put excess capital to work on well-priced lower layer covers, as well as meeting demand for increased limit. This is expected to result in a significant increase in demand for property catastrophe capacity at mid-year renewals.

Access the full report from Aon here. &

The R&I Editorial Team can be reached at [email protected].

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