A sense of order returned to reinsurance renewals at the mid-year, helped by the catastrophe reinsurance market finding a new equilibrium with ample capacity available for property cat risks, according to insurance and reinsurance broker Aon.
The broker’s June and July 2023 Reinsurance Market Dynamics report dissects the mid-year renewals season, during which the majority of Florida and Australia property catastrophe accounts renew.
Aon reports that property cat pricing and retentions increased at the 2023 June 1st and July 1st renewals when compared with the previous year, adding that the pressure on both rates and terms did ease slightly from the January renewals.
Importantly, the broker notes that capacity was more readily available as certain providers were more willing to grow in the current hard market cycle, despite the elevated loss experience of recent years.
“Major factors driving reinsurer behavior at January 1 have receded or were absent from the mid-year renewals and property catastrophe pricing is now attractive for markets even without securing retro coverage,” says Aon. “Retro has stabilized and catastrophe bond markets have rebounded, while Hurricane Ian losses have developed in line with expectations, if not at the lower end of expectations.”
A more orderly renewal season was also a result of buyers anticipating the reinsurers’ needs and subsequently adjusting their portfolios and reinsurance strategies, while the increased willingness of reinsurance companies to enter large private placements early, also played a role, notes Aon.
“Having reset its risk appetite at January 1, the catastrophe reinsurance market has also found a new equilibrium,” explains Aon.
As cat-exposed retentions have risen for insurers amid a desire from reinsurers to move higher up the tower and away from frequency events, driven by consistently high losses from so-called secondary perils and other events, Aon states that H1 cat losses suggest the burden of frequency events has now “shifted towards insurers”, highlighting fewer ceded losses.
But despite a retreat from the property cat market by some, Aon’s report reveals that property catastrophe capacity was ample at the mid-year renewals, with top layers on some U.S. national programmes being oversubscribed.
Of course, the firm rate environment will be a driver of this, although, according to Aon, as capacity constraints eased, rate increases for U.S. property cat reinsurance at mid-year did start to moderate when compared with Jan 1st, with U.S. risk-adjusted rates up 25-35%.
Expanding on the rate landscape, Aon says: “Tort reform and state reinsurance support helped attract capacity to Florida, which showed encouraging signs of a return to stability at mid-year. Australia and New Zealand, which have experienced large extreme weather events in the past 18 months, also saw double digit increases in property cat rates, in addition to similar increases at the mid-year 2022.”
Adding: “Per-risk and parts of the specialty reinsurance market remain challenging. However, casualty remained broadly attractive for reinsurers, with ample capacity and only single digit increases, despite signs of rising claims costs and adverse prior-year development.”
Aon expects demand for property cat reinsurance for the year ahead to rise by high single digits globally, or as much as 10% for U.S. catastrophe as primary insurers target lower net exposures and look to secure coverage for 2024.
Inflation is also an ongoing factor driving demand for reinsurance protection, with Aon highlighting greater claims costs in both property and casualty lines.
“However, the market appears to have a good handle on valuations while headline inflation has begun to ease in most key markets. Combined with anticipated updates to vendor catastrophe models, inflation is likely to support increased demand for reinsurance protection into 2024,” says Aon.
