Reinsurance renewals in 2024 have seen pricing gradually decrease, partly driven by an increase in alternative capital to $110 billion, combined with rate reductions being granted by reinsurers for the best performing risks.
In its Reinsurance Renewal Season 2024 report, broker Aon is forecasting an increase in pricing competition in 2025, and that insurers will “begin to see greater flexibility around capacity provision and coverages.”
Notably, Aon revealed that global reinsurer capital reached a record high of $695 billion at June 30, 2024, which is an increase of $25 billion compared to year end 2023.
According to the re/insurance broking group, the increase was primarily driven by retained earnings, new inflows to the catastrophe bond market, and recovering asset values.
The untapped growth potential of the industry also remains an important factor, with Aon highlighting that the key ratio of global insurance premium to gross domestic product has remained at approximately 1.8% since 2010, despite exposure growth and unmet client need.
Natural catastrophe re/insurance payouts also reached $58 billion during the first half of 2024, well above the first half decadal average of $47 billion. Despite this, reinsurers still managed to achieve an average common return on equity (ROE) of 17.6% during the same period.
In fact, a number of the industry’s largest reinsurers reported an ROE of more than 25%, well above that of most primary insurers and their own cost of capital, which ultimately could wind up leading to higher growth, according to Aon’s performance analysis of 100 global re/insurers.
But, the broking group did note that higher retentions in insurers’ catastrophe programs reduced capacity for frequency covers and resulted in an unequal distribution of underwriting profit across the insurance value chain.
Rupert Moore, UK CEO of Reinsurance Solutions for Aon, commented: “If the reinsurance market is to provide real value, it must play a more active role in helping insurers to manage frequency losses and earnings volatility. If reinsurers continue to run from risk, it will force insurers to follow suit and we will all become part of a shrinking, and less relevant industry. Aon is here to bring clarity and confidence around risk; shaping better decisions and highlighting profitable growth opportunities for all parties.”
Furthermore, the re/insurance sector also experienced significant volatility in 2024, with major events such as earthquake and airline losses in Japan, the Baltimore bridge collapse in the U.S., historic flooding in Dubai, as well as the CrowdStrike global computer outage.
Moore added: “Such losses reinforce recurrent, yet critical, themes for the industry – the growing interconnectivity and complexity of risk, volatility of losses, and the widening gap between insured and economic losses. The industry can either lean into the opportunities created by a world of changing risk or retrench and watch as a greater proportion of risk is retained or shifts to the public sector and capital markets.”
