The report reveals that, in contrast to 12 months earlier, the key renewal period proceeded ‘relatively smoothly’, as a rebound in profitability and capital positions, and greater availability of retrocession capacity, encouraged many reinsurers to display increased risk appetites at the enhanced terms established in 2023. Higher primary insurance pricing provided support in most areas, offset by continued uncertainty around the impact of climate change, inflation, litigation funding, and geopolitical risk on ultimate loss costs. These unknowns are creating headwinds to new investment, despite the expectation that most reinsurers will have easily covered their cost of capital in 2023.
Demand for reinsurance capital was robust during the renewals period, due to an erosion in insurance capital as a result of natural catastrophe losses, which introduced more volatility into underwriting results and brought increased rating agency scrutiny for many insurers. The significant and historically-elevated global natural hazard events included severe convective storm activity in the US and Italy; windstorm Ciaran in France; flood losses in New Zealand; flood and wildfire losses in Greece; a major earthquake in Turkey, and Hurricane Otis in Mexico.
Countering these losses was a strong reinsurance capital supply: Aon estimates that shareholders’ equity reported by global reinsurers increased by $35 billion to $532 billion over the nine months to September 30, 2023. With alternative capital having reached $103 billion, total global reinsurance capital was estimated at $635 billion at the nine-month point.
Contributing to the increase in alternative capital, in 2023 the catastrophe bond market grew by over $7 billion – a 21 percent increase over the outstanding issuance amount in 2022 – recording the largest-ever level of catastrophe bond issuance, at $15.4 billion. The catastrophe bond market serviced 30 issuing insurers and 14 issuing reinsurers during the year, with a combined issuance of $10.1 billion. Government entities were also very well supported, with $4.8 billion of issuance.
During the renewal period, casualty reinsurance capacity was seen to be ample against concerns over prior-year reserve deterioration and adverse litigation trends.
“The January 2024 reinsurance renewal sets the stage for an interesting year ahead. Demand for property catastrophe reinsurance remains strong at the start of 2024, supported by inflation and exposure trends. As capacity continues to build, there will be opportunities for insurers to buy additional limit at the top of programs, and for reinsurers to work with intermediaries to support clients challenged with retained losses, especially from secondary perils. In the current environment of strong reinsurer results, we must continue to work collectively to strengthen the value proposition that reinsurance offers to our clients globally.”
To view Aon’s Reinsurance Market Dynamics report, visit: https://aon.io/3NN2yAr
For more information about Aon’s Reinsurance Solutions, please visit: https://www.aon.com/home/solutions/reinsurance.html.
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