Re/insurance broker Aon has said that the “interesting” market dynamics that affected reinsurance pricing at the recent 1 January renewals are likely to continue to influence rates throughout the coming year.
The company’s ‘Reinsurance Market Outlook 2019’ report noted that reinsurance buyers continue to secure protection at accretive cost of capital terms despite a reduction in global reinsurer capital through the first nine months of 2018.
Global reinsurance capital fell by 2% since the end of 2017 from $605 billion to $595 billion, while traditional capital decreased by 4%, partly driven by rising interest rates and the strengthening U.S dollar.
In contrast, total alternative capital rose by 11% to $99 billion over the same period, and Aon expects longer-term investors to remain committed to the segment despite recent loss activity.
Reinsurance demand also showed slight increases in traditional products and lines, driven by regulatory requirements, attractive conditions for buyers, and recent losses in non-peak territories, according to Aon.
“Looking forward to April renewals, we expect similar market dynamics to January 1 given the composition of the renewing business,” the report stated.
Analysts explained that improvements in data quality have also resulted in continued refinement in pricing, with changes driven by individual client, line, and territory experience.
However, Aon claimed that, even with increases in reinsurance demand, capital supply continues to outstrip demand and companies are continuously looking for new ways deploy capital.
The broker highlighted evolving risks such as flood, cyber and government de-risking as areas of growth in this regard, as well as less familiar areas such as the sharing economy, food-borne illness, and longevity and pension shortfalls.
Insured catastrophe losses totalled approximately $230 billion over 2017 and 2018, and while Aon considers these losses to have been well-spread, it still constitutes a substantial burden for the re/insurance industry to absorb.
Losses in 2018 alone are currently estimated at $85 billion, which is 47% higher than the 2000-2017 average of $56 billion.