Buyers sought an estimated additional $5 billion+ in limit at the mid-year 2022 reinsurance renewals, driven mostly by elevated inflation expectations, and also heightened secondary peril losses, reports Aon.
“Faced with inflation-driven exposure growth, as well as increased frequency of secondary perils, many insurers entered the renewals looking to purchase higher reinsurance limits,” says insurance and reinsurance broker, Aon, in its June and July renewals report.
For buyers of reinsurance and retrocession, inflation resulted in exposure growth for all property lines at the mid-year, which are significant property reinsurance renewals dates globally, notably for U.S. catastrophe risks, which, at this time of year are dominated by the troubled Florida market.
Exposure growth across property lines of business led to greater demand for reinsurance. In fact, Aon estimates that an “additional $5 billion+ in reinsurance limit was sought by insurers at the June and July renewals, largely a reflection of higher inflation expectations.”
The reality is that inflationary pressures are set to continue, and combined with the adverse impacts of financial market volatility on both investment returns and surplus, Aon expects property programs to come under increasing pressure in the second half of the year.
Alongside inflation, the recent trend of above-average catastrophe loss activity also drove up demand for protection. However, the rise in demand comes as many reinsurers continue to cut their catastrophe exposures, notably in peak zones like Florida, which meant that some lightly-capitalised domestic Florida carriers faced material rate and capacity challenges.
“Overall, reinsurers sought higher attachment points in programs, creating porosity in lower layers that required data-led client differentiation and the support of alternative markets to finalize coverage,” says Aon.
While it was clearly a challenging renewals season, Aon notes that buyers “were able to achieve the limit needed through portfolio differentiation, more flexible terms and conditions, and through access to the full scope of the market, including alternative capital.”
