Aon: property cat ‘transitioning’ at April reinsurance renewals

Aon has released its report of the 1 April reinsurance renewals – the key date for Japan’s earthquake-exposed property catastrophe market – suggesting market pricing dynamics are tipping back in favour of buyers.

The paper emphasises that after a challenging period for reinsurance buyers, market conditions since the 1 January reinsurance renewals have continued to favour reinsurance buyers.

Aon called this “a dramatic shift” towards “ample property catastrophe reinsurance capacity”.

This was driven by attractive levels of risk-adjusted returns, having been experienced over the past 12 months, according to the reinsurance broker.

About 60% of Asia treaty business renews at 1 April, giving global global significance, with some of the world’s largest catastrophe programmes renewing in Japan, as well as large portfolios of business renewing in other regions – including South Korea, China and India.

Property catastrophe renewals in Japan reinforced the positive trends seen in the US at the 1 January renewals, Aon suggested, with “pricing flat to slightly reducing”.

South Korea, China and India also saw increased competition for catastrophe business, to varying degrees, Aon noted.

Pricing still high and flat 

However, pricing was still broadly flat – at previously high levels – for property catastrophe reinsurance, and “certain Asia Pacific markets and product lines remained challenged and subject to a tightening in terms and conditions”.

These, Aon noted, included property per-risk reinsurance, industrial fire accounts, some natural catastrophe loss-affected regions, and US exposed casualty treaties.

April 1 represented “a growth opportunity” for facultative reinsurance, Aon highlighted, noting fac is not used broadly as a risk transfer solution across Asia Pacific.

Reinsurers displayed an increased appetite for fac business at April 1 renewal, Aon said, with new managing general agent (MGA) players entering the fac market.

Aon’s India focus 

1 April is also a major renewal for India’s market, and Aon emphasised new opportunities for reinsurers in India.

Last year, Aon completed its return to the Indian market through its Global Insurance Brokers acquisition.

India’s forecast position as the fastest growing insurance sector of all G20 countries over the next five years.

Reinsurance capital “close to peak”

At $670bn, total global reinsurance capital is now close to the peak levels recorded in 2021, Aon observed, 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 has estimated that overall ILS capital increased to $108bn at year-end 2023, which marked a seven percent increase on the prior year, and an all-time high.

Despite global natural catastrophe insured losses reaching an estimated $118bn in 2023, many reinsurers performed strongly, due to elevated reinsurance pricing and higher cedent retentions.

Aon said early analysis suggests global reinsurers posted an average combined ratio of around 90% and an average return on equity of around 18%.

This situation represented “one of the sector’s best ever results”, according to Aon.

“The 1 April reinsurance renewals were more predictable and generally favourable to reinsurance buyers,” said George Attard, CEO of Asia Pacific for Aon’s Reinsurance Solutions.

“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,” he said.

“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,” Attard added.

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

Aon forecasts as much as $7bn of additional demand from US insurers for property catastrophe limit at the mid-year renewals, as programmes 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 $900m improvement in new underwriting margin for 2023.

The full report from Aon is available, here.