Reinsurance News

New reinsurance capital will enter once dust settles: Aon execs

27th February 2023 - Author: Matt Sheehan

Alfonso Valera and Tomas Novotny, CO-CEOs for EMEA at Aon Reinsurance Solutions, have said they are optimistic that capital will begin to enter the reinsurance space over the course of 2023 after “the dust settles” on the turbulent January renewals.

The two executives believe that new capital would help to stabilize the market during what has proved to be a volatile period, particularly as the benefit of higher pricing and interest rates becomes visible in earnings.

“Insurers in the EMEA region faced their toughest January renewal in twenty years, with wind and flood perils proving most challenging to place,” Valera and Novotny wrote.

“For the first time in two decades, insurers in the EMEA region faced significant increases in rates and retentions at the January 1 renewal. Following a sustained period of underwhelming results, catastrophe losses and macro-economic volatility, reinsurers globally sought to reset the market.”

In particular, demand for property reinsurance in EMEA grew at January 1, supported by high inflation in the UK and Europe, meaning European insurers sought additional reinsurance limit of approximately €5 billion at a time of constrained supply for property catastrophe capacity in both traditional reinsurance and alternative capital markets.

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Valera and Novotny note that wind and flood perils proved the most challenging to place, while increases were marked in France, Germany, Netherlands and Benelux, which suffered heavy catastrophe losses in 2021 and 2022.

Risk adjusted increases for property catastrophe reinsurance were standard although some insurers with loss affected portfolios saw increases almost double the average. In other markets, such as Switzerland, Iberia and Greece, price increases were more moderate.

Additionally, the Aon Reinsurance Solutions execs highlighted the higher levels of retentions that insurer were forced to settle for at 1/1, with attachment points generally moving up from around the 1-in-2 or 1-in-3-year event level to 1-in-5 for Europe.

Terms and conditions also came under pressure as reinsurers took steps to clarify coverage, they added, with firms looking for the most part to limit cover for secondary perils, such as winter and hail storms, which are less well-modelled compared with peak perils.

But while property catastrophe capacity was constrained, Valera and  Novotny also pointed to a combination of increased retentions, hours clause revisions and price rises that helped to stabilize capacity offered to EMEA insurers at January 1.

“Intensive preparations in the runup to January 1 also helped mitigate the turbulent renewal, ensuring that clients were able to purchase the core cover they need,” they concluded.

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