Re Buyers’ Market Prevails So Far; Reinsurers Seeking Growth

In separate reports this week, brokers Aon and Gallagher Re described a buyers’ reinsurance market for April 1, 2024 property and specialty renewals as reinsurer profit margins benefited from last year’s “redistribution of risk” to cedents.

Both reports, “Aon’s Reinsurance Market Dynamics: April 2024” and Gallagher Re’s “1st View: Heading Out of the Woods,” revealed that reinsurers are not only venturing out with increased available capacity, but also seeking growth—a trend that could continue into June and July renewals in the U.S.

The 4/1 renewal period is the traditional Japanese renewal date, but the Gallagher report noted that some significant U.S. and worldwide placements also happen, in addition to renewals in India and other Asian markets.

“It remains to be seen if the reinsurers who are falling behind their growth targets will maintain the same pricing discipline at midyear renewals, which represent the last chance to achieve their 2024 revenue goals,” wrote Tom Wakefield, chief executive officer of Gallagher Re, in the opening summary of the report. Wakefield’s summary also noted “a continuation of reinsurance markets moving to ‘risk on’ in the search for growth in property-catastrophe markets at 4/1, and moderating prices in specialty and retro markets.

Still, the look ahead is clouded by an event that occurred at the time of the Gallagher Re report’s publication: “The full impact of the tragedy in Baltimore is yet to unfold in terms of its impact on the marine market,” Wakefield wrote, referring to collapse of the Francis Scott Key bridge, describing it as a “potentially significant event that will be closely monitored” in the coming weeks.

Aon’s said “that earlier renewal discussions are happening on a significant number of U.S. midyear renewals, with reinsurers ready to provide indications and secure capacity.”

Market conditions “since the January 1st reinsurance renewals have continued to favor reinsurance buyers, with a ‘dramatic shift’ towards ‘ample’ property-catastrophe reinsurance capacity, driven by attractive levels of risk-adjusted returns, having been experienced over the past 12 months,” Aon said.

Given the better returns, the reinsurance market doesn’t just have more capacity now, but it’s no longer reluctant to deploy capital as was the case at the beginning of 2023.

Industry capital rose about 12 percent by Gallagher Re’s calculations, driven by improved combined ratios, better investment income and “a light natural catastrophe load (despite insured natural catastrophes across the industry being heavy).”

Aon noted that in spite of the fact that global natural catastrophe insured losses topped

$100 billion for the fourth straight year, reinsurers reported strong results for 2023 while cedents bore losses within higher retentions.

An early Aon analysis, puts the average 2023 combined ratio of global reinsurers at around 90, and the average return on equity at roughly 18 percent. Aon puts the increase in global insurer capital at around 17 percent

Aon said it is forecasting more demand for property-catastrophe reinsurance limit from U.S. insurers at midyear—some $7 billion of additional demand “as programs keep pace with inflation and evolving views of risk, and from a resurgent Florida market.”

Focusing on that key Southeast U.S. market, Aon said that 51 Florida-focused personal lines property insurers generated positive underwriting income for the first time in four years in 2023a positive underwriting income is being generated with an almost $900 million improvement in new underwriting margin for 2023.

In a media statement, George Attard, CEO of Asia Pacific for Aon’s Reinsurance Solutions, said that as “midyear renewals get under way for the catastrophe-exposed markets of Florida, Australia and New Zealand, reinsurers are indicating a strong appetite for catastrophe risk. We would expect the positive trend of the January and April renewals to continue at midyear 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,” he added.

Generally, Aon said the outlook is brighter for regional insurers that are working on repairing their books of business—changing underlying portfolios and adjusting rates, deductibles and coverage in the face of higher reinsurance retention levels. “Positive responses from reinsurers continue to manifest, and we are seeing a growing number of reinsurers writing specific regional programs for the first time.”

“As reinsurers continue to acknowledge and respond to the portfolio, underwriting and structure enhancements made by U.S. regionals, the overall market for the segment will continue to stabilize,” the Aon report says.

Further takeaways on the 4/1 renewals from both reports are set forth below.

According to Aon:

• Pricing for property-cat renewals in Japan was flat to slightly down at April 1.
• South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.
• Some markets remained challenged including property per-risk reinsurance, industrial fire accounts, certain natural catastrophe loss-affected regions. and U.S.-exposed casualty treaties.
• Reinsurers displayed an increased appetite for facultative business with new players continuing to enter the market such as managing general agents. April 1 is a major renewal date for facultative reinsurance, Aon said, also noting that it is a risk transfer solution that is not utilized broadly across Asia Pacific.
• There are new growth opportunities for reinsurers in the India market. India is forecasted as the fastest growing insurance sector of all G20 countries over the next five years, according to the report.

According to Gallagher Re:

• In property-cat, the “risk on” strategy in search of growth resulted in increased available capacity at the top end of programs and incremental improvement in risk adjusted pricing. According to a chart in the report, the highest price hikes for catastrophe-hit U.S. programs came in at +20 percent, but the low end for the range for such cat-hit programs was a flat renewal.
• The quoting process for property reinsurance was disciplined. While “most reinsurers were reluctant to open the bidding with discounts,” many did led discussions “with a desire to take increased shares.”
• Cedent demand for more limit in the U.S. market was satiated, and pricing for new high layers of capacity at the top end of programs “was in line with the underlying placements—bringing an end to any requirement for inverted pricing.” (Explaining “inverted pricing,” the report notes that new top layers had required pricing higher than underlying layers during recent years.)
• Structural changes, such as increased retentions, added complexity to the quoting process for specialty classes, such as marine and aerospace. Still, “in the final analysis, specialty reinsurance and retro pricing moderated just slightly more than the catastrophe market albeit perhaps from a higher jumping off point.”
• For large Japanese catastrophe excess of loss programs, there was “an unusual degree of consistency,” with reinsurers quoting flat to very modest risk-adjusted rate increases.
• There is stress on casualty where prior-year adverse developments reported by some insurers in 2023, and continued price reductions in public D&O “led to more challenging negotiations.” Bottom line: Reinsurers are responding differently to different cedents—”offering both increased shares and decreased shares in ostensibly the same classes dependent on the client.”
• Overall, the report shows excess of general liability excess of loss reinsurance rates fluctuating between -5 percent and +5 percent for programs with no loss emergence, and flat-to-up 10 percent for programs with loss emergence.