Aon released its Ultimate Guide to the Reinsurance Renewal – a comprehensive report aimed at helping clients navigate volatility and make better decisions in the approach to the Jan. 1, 2023 reinsurance renewal period.
The report reveals that a ”unique confluence of market uncertainties” will characterize the renewals, as macroeconomic and geopolitical pressures have coincided with an increased frequency of extreme weather events. Investors and reinsurers are consequently reassessing their view of risk and appetite for natural catastrophe exposures, as macroeconomic conditions drive insurers to seek additional risk transfer capacity, resulting in a supply / demand mismatch that will continue through the January 2023 renewal.
While the majority of reinsurers have opted to maintain existing capacity levels, some have reduced or withdrawn their participation in the property catastrophe market. Aon’s data highlight that global reinsurer capital declined by 11 percent, or $75 billion, to $600 billion in the first half of 2022, principally driven by substantial unrealized losses on investment portfolios. Additionally, the strengthening of the dollar against the euro has particularly impacted European reinsurers’ capacity provision.
The report highlights that catastrophe bond issuance could reach record volumes in 2022, as alternative capital levels remain robust – having decreased by just 1 percent to $95 billion during 1H 2022. Attracting new sources of capital to the market, combined with data-led portfolio differentiation, will be essential to meeting insurers’ reinsurance requirements going forward.
Joe Monaghan, global growth leader at Aon’s Reinsurance Solutions, said: “Reinsurers will prioritize cedents that provide detailed exposure data and demonstrate underwriting actions that mitigate areas of uncertainty, especially around the impact of inflation on total insured values. Reinsurers must also be mindful that cedents are equally affected by the trends that have negatively impacted property catastrophe results. All parties will need to be pragmatic, flexible and open-minded to different solutions and trading relationships.”
Aon highlights that within the challenging reinsurance marketplace, there remains opportunities for diversification and growth: the casualty reinsurance market is proving robust, and along with specialty lines, should remain attractive to reinsurers seeking to diversify from natural catastrophe risk. Meanwhile, the fast-growing Intellectual Property (IP) market could represent an attractive proposition.
Monaghan added: “The reinsurance industry has absorbed volatility and proved resilient to many historical shocks and challenges. Despite the current headwinds, reinsurance remains a highly accretive source of capital for the insurance industry and one that is rightfully in high demand.”
To view Aon’s Ultimate Guide to the Reinsurance Renewal, please click here: https://www.aon.com/getmedia/1d0c2265-3b59-4ad9-a5ee-ae7be9879df6/ultimate-guide-to-reinsurance-renewal.pdf
For more information about Aon’s Reinsurance Solutions, please visit: https://www.aon.com/home/solutions/reinsurance.html
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