Property Natural Catastrophe Reinsurance Capacity Contracted During Mid-Year Renewals

Aon, in its recently released Reinsurance Market Dynamics report which examines macroeconomic and industry trends observed during the June 1 and July 1 reinsurance renewals, says reinsurance buyers faced a "near-perfect storm," with reinsurance capacity constraints exacerbated by insurers' rising demand for reinsurance protection.

Source: Aon | Published on July 5, 2022

Aon on Jan 1 renewals

Reinsurer capital fell to $645 billion on March 31, 2022, from $675 billion on December 31, 2021, according to Aon data. Alternative capital increased to $97 billion as investors recognized the value of diversification and increased margins amid more volatile financial markets, with demand outstripping supply.

For the first time since the devastation of Hurricanes Charley, Ivan, Katrina, Rita, and Wilma in 2004 and 2005, property natural catastrophe capacity contracted during the renewal period, particularly for lower layers of reinsurance limit for Florida catastrophe risk. Insurer demand for higher reinsurance limits was driven by inflation and volatility in investment markets, as well as increased natural disaster losses.

In contrast, the casualty reinsurance market remained stable, though concerns about social inflation and emerging risks made renewals more difficult.

Despite the challenges, the majority of insurers were able to meet their reinsurance needs during renewals.

"The property reinsurance market may be fast approaching a true 'hard' market, where overall demand is not readily satisfied," said Joe Monaghan, global growth leader for Aon's Reinsurance Solutions. Inflation, economic and financial market uncertainty, and climate change will increase volatility and place increasing strain on insurer capital, just as reinsurers retrench. Rethinking access to capital by attracting new sources of capital to the market, in conjunction with data-driven portfolio differentiation, will be critical in meeting insurers' reinsurance needs in the future, allowing insurers to retain flexibility and make better business decisions."

The report also emphasizes the importance of insurer differentiation in light of reinsurers' growing proclivity for "quality risk."

"Difference and anticipating reinsurer concerns is increasingly important to insurers' securing their support, obtaining the best available terms and conditions, and maintaining business resilience," Monaghan added.

Follow this link to view Aon's Reinsurance Market Dynamics report: