It’s clear that the property catastrophe market is going to be challenging in 2023, but while the market shifts there are levers out there re/insurance broker Aon is able to utilise to help clients de-risk. After all, “this is our wheelhouse,” explained Greg Case, Chief Executive Officer (CEO).
After reporting a set of stable results supported by Aon’s Reinsurance Solutions, the global brokerage held an analyst call during which the state of the property cat and broader reinsurance market was discussed.
“I think it’s worth stepping back; there is a lot going on right now on the reinsurance side,” said Eric Andersen, Aon’s President. “And our primary mission continues to be to help our insurance company clients match risk with capital.”
Andersen stressed that, in terms of where the capital is sourced from and deployed, it’s important to remember that this is a global business like few, which shows up very differently in different parts of the world.
“But if you step back and you think about it geographically, the European clients, I think, are expecting to have the supply of property cat that they need, albeit with a pricing and structure negotiation that takes into account the effects of inflation that’s happening in Europe, but also the losses that have happened in that region over the last three years. Whether it is German floods, French hail, etc., they’ve got certain dynamics that have affected the European marketplace,” said Andersen.
“And I think for North America, the property cat market is going to be more challenging,” he added.
Expanding on the conditions in the U.S., Andersen highlighted a couple of points.
“One, you’ve got significant losses, both on the traditional things like hurricane, but also as you think about wildfires, storms, the secondary perils, have been a substantial hit to reinsurers over the last five years. So, there is certainly a crisis of confidence in underwriting and how they deploy their capital for our clients. And so, models have to be better, we really have to focus hard on making sure risk identification, they understand exactly what they’re offering and what the sort of return scenarios are for them over time,” he noted.
“But ultimately, we’re focused on creating capital for them, capital options, so they can get the protection that they need going forward,” added Andersen.
In the U.S., but potentially elsewhere, there’s expected to be a supply-demand imbalance in property cat at 1/1, and although the January renewals have a focus on European business, conditions are expected to be more challenging for buyers of protection on a global basis.
In light of this, Andersen provided some insight into how current market conditions impact facultative reinsurance and other tools at Aon’s disposal, explaining that as buyers of reinsurance are forced to take higher retentions, they will be continuing to try to de-risk their portfolios.
“They just do it with different tools, right. They actually then will look at specific clients that they’ve got on their primary portfolios that they want help on, they’ll use facultative instead of treaty. So, while the market does shift, there are levers out there that we bring to bear for our clients that can actually help them de-risk and get the protection that they need,” said Andersen.
Case, Aon’s CEO, reiterated Andersen’s comments on current reinsurance market dynamics, but emphasised that, “this is our wheelhouse, we love it.”
He went on to explain that “it creates tremendous opportunity to support clients and we’re bringing all the solutions to bear.”
“This really does, as Eric described, reinforce the opportunity. When you can take apart the market the way Eric just described and have the analytics to really do something about it, drive solutions on behalf of clients, this is what puts us in such a unique position against the rest of the world on this topic. So again, a lot going on out there and we love it every day because it puts us in a very, very unique position,” said Case.
