The most difficult conditions were experienced in the property segment, driven by an evident mismatch in demand and supply. Insurers’ desire to buy more limit collided with reinsurers’ need to reduce volatility and improve profitability, after a string of poor results since 2017. Aon’s Reinsurance Aggregate has posted an average combined ratio of 101 percent during this period and an average return on equity of 5 percent.
Adding to the challenges, the renewals took place against a backdrop of high levels of inflation, significant erosion of reinsurer equity driven by a precipitous rise in interest rates and limited availability of retrocession capacity following Hurricane Ian in late September 2022. Aon estimates that global reinsurance capital fell by 17 percent to $560 billion over the nine months through September 30, 2022.
The outcome was a significant shift in pricing for property catastrophe and retrocession coverage on a global basis, with retentions increasing as reinsurers sought to move further away from frequency layers and terms and conditions also being tightened. The materiality of these changes was challenging, particularly for insurers that have not ceded losses and were not in peak zones.
In contrast to property, capacity in the casualty reinsurance market remained plentiful during the renewals period, as reinsurers demonstrated an increased appetite for the class. This led a number of cedents to explore options to build cross-program support for casualty portfolios in order to build property catastrophe capacity, taking advantage of certain reinsurers’ desire to identify diversified growth opportunities.
Joe Monaghan, global growth leader for Aon’s Reinsurance Solutions, said: “The latest reinsurance renewal period was characterised by fundamental shifts in market dynamics as reinsurers reset pricing, attachment points and return expectations, especially for property risk. It also created stress in many long-term client/reinsurer relationships and the emergence of new relationships as many reinsurers saw the dislocation at January 1 as an opportunity to expand their client portfolio.”
The Reinsurance Market Dynamics report highlights that well-informed insurers commenced the renewals process early, taking a pragmatic approach and exploring a wide range of program options and structures, as well as protection solutions and capacity providers. Despite the challenging conditions, cedents that were earlier to market and more advanced in attaining firm orders were better placed to address gaps in capacity.
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