Reinsurers told take advantage of market opportunities amid concerns new capacity will impact discipline

Brokers say the global reinsurance market is beginning to turn as the 1 April renewal, which are key for the Asian market continued to build on what it had described as the “progress” made at the 1 January renewals.

Aon has issued its Reinsurance Market Dynamics April 2024 report which highlighted that the renewals continue to favour reinsurance buyers, with a ‘dramatic shift’ towards ‘ample’ property catastrophe reinsurance capacity, driven by attractive levels of risk-adjusted returns, having been experienced over the past 12 months.

George Attard, CEO of Asia Pacific for Aon’s Reinsurance Solutions, said: “The 1 April reinsurance renewals were more predictable and generally favourable to reinsurance buyers. As mid-year renewals get under way for the catastrophe-exposed markets of Florida, Australia and New Zealand, reinsurers are indicating a strong appetite for catastrophe risk. We would expect the positive trend of the January and April renewals to continue at mid-year renewals, with adequate capacity for property catastrophe risks and enhanced pricing competition. Insurers looking to purchase additional limit will also find adequate capacity to meet their needs.”

While around 60 percent of Asia treaty business renews at the start of this month the period also has global significance, with some of the world’s largest catastrophe programs renewing in Japan, as well as large portfolios of business renewing in other regions – including South Korea, China and India.

Aon added property catastrophe renewals in Japan reinforced the positive trends seen in the U.S. at the January 1st reinsurance renewals, with pricing flat to slightly reducing, while South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.

While pricing was broadly flat for property catastrophe reinsurance, certain Asia Pacific markets and product lines remained challenged and subject to a tightening in terms and conditions – including property per-risk reinsurance; industrial fire accounts; certain natural catastrophe loss-affected regions; and U.S. exposed casualty treaties.

In terms of growth opportunities, Aon added 1 April represents a major renewal date for facultative reinsurance – a risk transfer solution that is not utilized broadly across Asia Pacific. Reinsurers displayed an increased appetite for facultative business at the April 1st renewal, while new players continue to enter the market such as managing general agents.

The report revealed that, at $670 billion, total global reinsurance capital is now close to the peak levels recorded in 2021, resulting from strong reinsurer results and a recovery in asset values in 2023, as well as a historic period for the insurance-linked securities (ILS) market. Aon Securities estimates that overall ILS capital increased to $108 billion at year-end 2023, which marks a seven percent increase on the prior year, and an all-time high.

Despite global natural catastrophe insured losses totalling $118 billion in 2023, many reinsurers performed strongly, due to elevated reinsurance pricing and higher cedent retentions. Early analysis suggests that global reinsurers posted an average combined ratio of around 90 percent and an average return on equity of around 18 percent, representing one of the sector’s best ever results.

Looking ahead, Aon’s analysis shows that earlier renewal discussions are happening on a significant number of U.S. mid-year renewals, with reinsurers ready to provide indications and secure capacity.

Aon forecasts as much as $7 billion of additional demand from US insurers for property catastrophe limit at the mid-year renewals, as programs keep pace with inflation and evolving views of risk, and from a resurgent Florida market.

In Aon’s tracking of 51 Florida-focused personal lines property insurers, for the first time in four years a positive underwriting income is being generated with an almost $900 million improvement in new underwriting margin for 2023.

The report added: “Following challenging renewals in 2023, which resulted in a global reset in property catastrophe pricing and retention levels, the 1/4 renewal was more predictable and generally favourable to reinsurance buyers.

“Property catastrophe renewals in Japan reinforced the positive trends seen in the US at 1/1, with pricing flat to slightly reducing, while South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.

“While pricing renewed flat to down modestly for property catastrophe reinsurance across the region, certain Asia Pacific markets and product lines remain challenged and subject to a tightening of terms and conditions, including property per-risk reinsurance, industrial fire accounts, certain natural catastrophe loss-affected regions, and US exposed casualty treaties.”

It added more favourable outlook Market conditions since 1/1 have continued to move in favour of reinsurance buyers.

“At the start of last year, property catastrophe capacity was constrained. Forward to 2024, and a dramatic shift in supply has resulted in ample capacity, driven by attractive levels of risk adjusted returns for property catastrophe reinsurance,” it continued. “At $670 billion, total reinsurance industry capital at year end 2023 is now close to the peak levels last seen back in 2021, driven by strong results and the recovery in asset values last year, as well as a record year for catastrophe bond markets.

“The major reset in the property catastrophe reinsurance market at 1January 2023, has had a dramatic effect on the fortunes of reinsurers.”

Looking ahead the report explained: “Catastrophe losses in 2024 and reinsurers’ ability to sustain current earnings levels will be key to attracting capital and increased investor support. Preliminary global catastrophe losses in the first quarter of 2024 are estimated to reach at least $11 billion, with additional loss development expected.

“This figure is notably lower than losses in the first quarter of 2023, when they reached $30 billion due to higher SCS and winter storm activity in the United States, as well as the costly February earthquake in Turkey and two back-to-back billion-dollar disasters in New Zealand. As mid-year renewals get under way for the catastrophe exposed markets of Florida, Australia and New Zealand, we would expect the positive trend of 1/1 and 1/4 to continue, with adequate capacity for traditional occurrence property catastrophe risks and enhanced pricing competition.

“There are now good opportunities in the market for reinsurers to put excess capital to work on well-priced lower layer covers and to meet demand for increased limit.”

The report revealed that, at $670 billion, total global reinsurance capital is now close to the peak levels recorded in 2021, resulting from strong reinsurer results and a recovery in asset values in 2023, as well as a historic period for the insurance-linked securities (ILS) market.

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