Jan. 1 renewals were smooth compared with the previous year as the market saw greater profitability and retrocession capacity among other positive trends, said broker Aon plc.
Reinsurers sought to increase risk appetites at renewals, Aon said in a statement on the launch of its Reinsurance Market Dynamics report. The broker said higher primary insurance pricing provided support in most areas, offset by uncertainty on climate change, inflation, litigation funding and geopolitical risk.
Aon said demand for reinsurance capital was robust from capital erosion due to natural catastrophe losses, which introduced more underwriting volatility and brought increased rating agency scrutiny for many insurers. Significant events included severe convective storms in the United States and Italy, Windstorm Ciarán in France, flood losses in New Zealand, flood and wildfire losses in Greece, a major earthquake in Turkey and Hurricane Otis in Mexico.
This was countered by a strong reinsurance capital supply as Aon estimates that shareholder equity reported by global reinsurers rose $35 billion to $532 billion over the nine months to Sept. 30, 2023. Alternative capital reached $103 billion and total global reinsurance capital was estimated at $635 billion at the end of September.
“The January 2024 reinsurance renewal sets the stage for an interesting year ahead,” Joe Monaghan, global growth leader, reinsurance solutions, Aon, said in a statement. “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.”
Alternative capital increased as the catastrophe bond market grew by $7 billion or 21% in 2023, compared with the previous year. It was the largest-ever level of catastrophe bond issuance, at $15.4 billion.
For property reinsurance, demand remained robust at Jan. 1 renewals. Catastrophe limit purchased globally rose by low- to mid-single digits year-on-year, with inflation a contributing factor, Aon said in its report.
“Insurers recognize the opportunity to purchase additional capacity at the top of their programs but are generally constrained by the reality of budgets and current pricing levels,” the report said. “Earnings protection is highly prized in the current environment but remains difficult to secure on cost-effective terms.”
In a change from the previous year, most reinsurers entered renewals looking to grow in property catastrophe reinsurance, making the market more consistent in its approach to pricing and terms. Appetite for peak perils and upper layers was generally strong, with the catastrophe bond market providing further competitive tension in certain markets, Aon said.
Pricing pressure on upper layers was generally down in the United States but up in Europe, Middle East and Africa, particularly with ceded loss activity in 2023, such as Italy, France and Turkey.
In casualty treaty renewals, some reinsurers took a tougher stance ahead of Jan. 1 due to prior-year reserve deterioration and concern for adverse litigation trends while others saw the earnings potential of improving primary casualty pricing and higher interest rates, Aon said.
Appetites varied but capacity was ample.
General casualty excess of loss business renewed at mid-single digit risk-adjusted rate increases, Aon said. There were no significant changes to program structure or conditions. Retentions were stable but recent positive underwriting results gave casualty insurers options to push for concessions from reinsurers.
With adequate capacity available, quota shares were flat to slightly down, Aon said.
In professional lines, quota share commissions were scrutinized with a general downward trend. Excess of loss treaties saw very low single-digit to high single-digit increases.
The reinsurance market returned to stability for Jan. 1 renewals following volatile property catastrophe conditions the previous year, according to reinsurance brokers Gallagher Re and Howden.