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Growth opportunity for agriculture reinsurers in 2023: Aon

6th February 2023 - Author: Kassandra Jimenez-Sanchez

Despite difficult January 1st renewals, the outlook for agriculture business looks very promising for 2023, with growth opportunities for reinsurers, according to Aon’s January Reinsurance Market Dynamics report.

Agriculture Latin AmericaHistorically profitable markets saw only minor changes, but territories with recent losses experienced hardening terms, Aon analysts observed.

These changes were driven by the outsized Brazil loss of 2021 – which developed and was quantifiable in 2022 -, the continued increase in commodity prices and the strengthening of the U.S. dollar.

A shortage of capacity, along with the withdrawal of a major reinsurer and others having to reduce their agriculture portfolios, has also fuelled the hardening terms.

Pro-rata capacity has been in short supply, as some reinsurers only offered pro-rata capacity in limited territories.

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Those continuing to support pro-rata were often able to improve terms and would only commit capacity if modelled margins showed a reasonable increase year-over- year.

Despite these improvements, Aon noted, pro-rata treaties were difficult to fill out, and in certain territories, clients had to reduce their EPI to ensure full placement.

On top of this, the strong dollar has meant that 40 percent more capacity is required over last year for the U.S., the world’s largest crop insurance market. This resulted in some reinsurers reducing, and even refusing, ‘buffers’ on Stop Loss limits for 2023.

Aon highlighted that this pressure on clients to accurately project their EPIs is also seen by the M&D percentages increasing.

Given pressure from reinsurers and poor results in past years, original rates have improved significantly, according to the report. A tightening of terms and conditions, like increased standardised deductibles and the cutting of marginal products/coverages has also helped to improve the original business.

The proposed introduction of new government catastrophe schemes (France and Italy) will help reduce volatility and improve results, Aon noted.

What this means, according to analysts, is that the outlook for agriculture business looks very promising for 2023, with enhanced opportunities for reinsurers to generate profits and improve historical margins.

Aon said: “Many pro-rata treaties had loss ratio caps and loss participation clauses introduced for 2023, even if the margin was already improved by original underwriting measures. A consolidation of Stop Loss deductibles (increased) and uniformity in pricing (increased) has given reinsurers a more standard offering.

Adding: “More capacity was needed to cover the increased retentions, and at the right price, there should be enough capacity to complete all Stop Loss placements, allowing reinsurers to construct a more balanced and robust worldwide portfolio. The later renewal timing should also allow reinsurers to enhance these already improved portfolios. This has been evidenced by some specialist crop reinsurers seeking retro capacity to boost their program shares and take advantage of the hardening market terms.”

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