Alongside a stable casualty reinsurance market, buyers experienced the most challenging specialty renewals in a generation and also capacity constraints in the property space, as reinsurer appetite for catastrophe risk fell materially at the mid-year renewals, reports insurance and reinsurance broker Aon.
For buyers of protection, Aon describes a “near-perfect storm” of constrained capacity and rising demand for reinsurance coverage at the important June and July renewals.
As our readers will be aware, issues in the State of Florida, which is a key market at the June renewals, run deep, and alongside elevated losses from catastrophes includes extreme levels of fraud and litigation, which has threatened to cripple the state’s homeowners insurance market.
After consecutive years of above-average catastrophe claims, many reinsurers decided to cut their nat cat exposure at the mid-year renewals. In fact, the pull-back was such that Aon says that for the first time since the spate of U.S. hurricanes in 2004 and 2005, property natural catastrophe capacity contracted materially at the mid-year, with some providers of protection not writing certain risks at any price. Notably, some reinsurers completely avoided lower layers of Florida cat risk, regardless of the price.
“Specialty also faced its most challenging renewal in a generation,” says Aon. According to the global broker, challenges in the specialty space reflect the potential for large losses from Russia’s invasion of Ukraine, highlighting how political and social trends impact reinsurance renewals.
In contrast to the troubled property and specialty market at June and July, “the casualty reinsurance market remained stable.” However, Aon does add that it was a somewhat more challenging renewals than in the past given social inflation trends and emerging risks.
“Inflation and volatility in investment markets, combined with elevated natural catastrophe losses, drove demand for higher reinsurance limits. Increased demand, however, was met by capacity constraints as reinsurers came under mounting pressure from investors to address earnings volatility and reduce catastrophe exposures,” says Aon in its June and July reinsurance renewals market report.
Clearly, buyers of protection were faced with numerous challenges at the mid-year reinsurance renewals. However, Aon reports that the majority were ultimately able to satisfy their reinsurance needs.
While market firming persisted at the mid-year, Aon feels that the property reinsurance market “may be fast approaching a true ‘hard’ market, where overall demand is not readily satisfied.”
“Inflation, economic and financial markets uncertainty, and climate change, will put insurer capital under increasing pressure, just as reinsurers retrench. Attracting new sources of capital to the market, combined with data-led portfolio differentiation, will be essential to meeting insurers’ reinsurance needs going forward,” says the re/insurance broker.
