Even with the further easing of conditions at 1.1, the property catastrophe reinsurance market is priced to produce target expected returns for reinsurers, according to Aon’s Reinsurance Market Dynamics January 2025 Renewal report.
With strong capital levels and increased confidence in current pricing and terms, reinsurers are also reportedly eager to expand their portfolios.
“In what was an orderly renewal, rate reductions were achieved across the board and in most regions, with reinsurers generally more responsive to the needs of insurers and willing to expand their offering,” Aon’s new report explained.
The largest reductions were achieved by global and large U.S. national insurers, while U.S. regional insurers, which faced challenging conditions in 2023 and 2024, found a more stable market for 2025 renewals.
At the same time, Aon observed that capacity for property catastrophe reinsurance was more than adequate to meet demand, helping drive increased competition for placements at renewal.
“Having rebounded from a 10-year low in 2022, reinsurer capital hit a new high of $715 billion at September 30, 2024. Growth in industry capital was fueled by retained earnings, recovering asset values and capital inflows to the insurance-linked securities market,” the firm’s report said.
It continued, “The healthy retro reinsurance market also helped bolster reinsurance capacity, while catastrophe bonds provided significant competitive pressure at 1.1 renewals.
“While new players alone likely wouldn’t have moved the market alone, existing reinsurers increased their risk appetite and willingness to deploy capacity through larger line sizes and expanded coverage.”
Meanwhile, as per Aon, property rates on a risk-adjusted basis were down year-on-year globally, driven by ample capacity and the increased risk appetite of reinsurers.
Competition is said to have been most intense for global insurers and U.S. nationals, which saw the largest reductions while pricing for U.S. regional insurers was more moderate.
In Europe, Aon saw reductions in the single-digit range except in loss-affected markets where reinsurers took a client-by-client approach.
Elsewhere in the report, the firm stated that demand for reinsurance remains strong, although upward pressure on limits has eased considerably with lower inflation.
The Aon Property Inflation Index, which combines construction materials and construction labour, is now at 1.9%, down from a peak of 15% in January 2022.
“Overall, global demand at this year’s renewal was slightly up (less than 5%) from the January 2024 renewal, with some insurers opting to purchase higher limits and/or additional frequency natural catastrophe protection, such as additional layers, aggregate and subsequent event covers. Some insurers are likely to consider purchasing additional frequency covers after 1.1 renewals, market conditions allowing,” Aon concluded.
