Re/insurance broker Aon has pointed to a “new equilibrium” in the property reinsurance market, as pricing momentum continued to slow through the mid-year renewal period.
As part of its latest Reinsurance Market Outlook report, Aon reflected on what it considered to be “orderly” June and July reinsurance renewals, in which trends from January and April carried through.
The report also looked at levels of global reinsurance capacity, which were found to have remained unchanged by the end of Q1 2021, relative to the end of last year.
Overall pricing momentum slowed in non loss-impacted portfolios during the renewals, analysts observed, as contract terms continued to be a strong focus, particularly for those that renewed prior to the height of the COVID-related contract negotiations in 2020.
Other key factors at play included new capacity from both new entrants and existing markets, although capacity deployment remained largely focused on catastrophe occurrence and more opportunistically on pro rata and per risk.
Programs in many regions also saw a shift in interest to middle and upper layers following the frequency of recent years, and, while capacity remained available for lower layers, pricing dynamics adjusted accordingly with capacity available.
Given continued client interest in earnings protection and the relative cost and availability of aggregate capacity, Aon further pointed to an increased interest in pro rata coverage, which was met with sufficient supply as reinsurers looked to benefit from underlying rate improvement.
And despite pressure on deductibles and attachment points owing to increased frequency of catastrophe events in recent years, aggregate programs were able to renew with overall capacity available. That said, the market was more difficult for loss impacted programs and those looking for additional capacity or new coverage.
In territories where catastrophe modeling output has historically driven pricing discussions in prior years, Aon noted that reinsurers increased their focus on actual loss experience. As a result, programs with poor experience relative to modeled loss were under more price pressure than programs that have performed at or better than modeled expected loss.
And with the cost of lumber and other building materials increasing, both insurers and reinsurers considered the impact on replacement costs for renewals, with some clients considered purchasing additional capacity.
On the alternative capital, analysts reported that cat bonds remained attractive to insurers with some traditional limit being swapped for ILS capacity during June/July renewals due largely to competitive pricing.