Global: 1 Jan property reinsurance renewal sets stage for an interesting 2024
Source: Middle East Insurance Review | Feb 2024
The 1 January 2024 treaty renewal proceeded relatively smoothly, as a rebound in profitability, rebuilding capital positions and greater availability of retrocession capacity encouraged many reinsurers to display increased appetites at the enhanced terms established in 2023, said Aon latest Reinsurance Market Dynamics report, which reviews the 1 January reinsurance renewal period and evolving market dynamics.
The report added that 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 keeping potential new investors on the sidelines, despite the expectation that most reinsurers will easily cover their cost of capital in 2023.
Demand for reinsurance capital was robust during the renewals period, due to an erosion in insurance capital because 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 estimated that shareholders’ equity reported by global reinsurers increased by $35bn to $532bn over the nine months to 30 September 2023. With alternative capital having reached $103bn, total global reinsurance capital was estimated at $635bn at the nine-month point.
Contributing to the increase in alternative capital, in 2023 the catastrophe bond market grew by over $7bn – a 21% increase over the outstanding issuance amount in 2022 – recording the largest-ever level of catastrophe bond issuance, at $15.4bn. The catastrophe bond market serviced 30 issuing insurers and 14 issuing reinsurers during the year, with a combined issuance of $10.1bn. Government entities were also very well supported, with $4.8bn 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. M