Reinsurance renewals at April 1 consolidated the progress made at 1/1, as ample capacity and increased competition for catastrophe reinsurance led to improved outcomes for the majority of insurers. The renewal signaled a further improvement in conditions and sets the stage for a more comprehensible reinsurance and catastrophe bond market at mid-year and into 2025.

According to Aon’s Reinsurance Market Dynamics report, the major reset in the property catastrophe reinsurance market at January 1, 2023, has had a dramatic effect on the fortunes of reinsurers.

Based on early analysis, global reinsurers reported an average combined ratio of around 90% for 2023 and an average return on equity of around 18%, representing one of the sector’s best ever results.

The insurance and reinsurance market is now entering its next phase. There is still significant unmet insurer need, including solutions that address earnings volatility such as structured solutions and aggregate covers.

At 4/1 renewals, reinsurers have been more flexible in this regard, with growing opportunities for insurers to leverage competition among reinsurers for the attractive higher catastrophe layers to secure protection across their program.

Faced with heightened frequency of natural catastrophes and increased net retentions, regional insurers are making considerable progress in terms of underlying rate and structural adjustments to portfolios.

Reinsurance rate increases for property catastrophe business are likely to slow to below 10% on average when contracts are renewed in January 2024. Improvements in underwriting margins will therefore be less significant than in 2023. Typically, two-thirds of non-facultative reinsurance business is renewed in January, mostly in Europe.

U.S. Reinsurance Market: Mid-year renewals off to positive start

U.S. Reinsurance Market: Mid-year renewals off to positive start

April is a relatively light renewal for U.S. insurers, although several large national and global carriers renew at 4/1. For those U.S. and global insurers renewing at April 1, pricing was favorable. Programs had adequate capacity and some insurers took the opportunity to purchase significantly higher limits.

The positive direction taken by the U.S. property catastrophe reinsurance market in January and again at April 1 looks set to continue at mid-year, with ample property catastrophe capacity to meet demand, and signs of greater price competition.

Aon anticipate a significant increase in demand for property catastrophe capacity at mid-year renewals, with attractive opportunities for reinsurers to put excess capital to work on well-priced lower layer covers as well as meeting demand for increased limit.

Faced with higher net retention levels, U.S. insurers are implementing fundamental changes to their underlying portfolios, including rate adjustments, changes to deductibles and coverage, and risk selection.

Although insurers are at differing stages of this journey, positive results are now beginning to materialize.

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.

Reinsurance market in Florida

Reinsurance market in Florida

Following a tough couple of years for Florida’s insurers, legislative reforms and underwriting actions helped the market turn the corner, with most of the state’s property insurers returning to profit over the past twelve months.

A group of 51 Florida focused personal lines property insurance companies tracked by Aon generated a positive underwriting income for the first time in the last four years with an almost $900 mn improvement in net underwriting margin for 2023.

With a return to underwriting profitability, there is growing appetite to shrink the risk borne by Citizens Property Insurance Corporation, the state’s windstorm insurer of last resort.

Over 660,000 policies were assumed from Citizens in 2023, with a further 350,000 policies to be assumed through May of 2024. The shift of Florida Citizens customers to private carriers, combined with the expiration of the Florida government-funded Reinsurance to Assist Policyholders layer and planned increases in reinsurance globally for many insurers, will create significant additional demand for new property reinsurance capacity.

Reinsurance capacity for property catastrophe risk in Florida is set to return and expected to meet increased demand at mid-year renewals.

Catastrophe bond activity for Florida property carriers is also at record levels, with almost $1 billion of bonds completed since 1/1/24 and over $500 million in the pipeline, not including Citizens.

APAC Reinsurance Market builds on positive trends

April 1 is a key renewal for Asia, in particular Japan, South Korea and India. Around 60 percent of Asia treaty business is renewed at April 1, and as much as 95 percent in Japan.

Across the region, capacity increased at a time of stable demand. Reinsurers’ willingness to deploy capacity resulted in increased competition for property catastrophe at 4/1, with over placement returning for the most attractive risks.

On balance, property catastrophe business continued the positive global trend at 1/1, with many accounts renewing flat or with slight reductions.

Despite excess capacity in the market, reinsurers remain disciplined and capacity price-sensitive. Several pockets of the market continue to be challenged, including per-risk reinsurance and industrial fire business, catastrophe loss affected regions, and U.S. liability exposures written by Asia-based insurers.

However, insurers are increasingly able to leverage reinsurer appetite for high layer catastrophe risk to meet their wider needs.

Looking ahead, increased supply will create opportunities for insurers to achieve more favorable outcomes at future renewals.

Key mid-year renewals for Australia and New Zealand are likely to follow the experience of 1/1 and 4/1, with growing appetite for catastrophe risk at current pricing and terms.

Adjustments to catastrophe programs in 2023 have seen a greater proportion of catastrophe losses in Australia and New Zealand retained by insurers.

With reinsurers on a firmer footing, the challenge is to channel capacity toward opportunities in fast-growing Asia Pacific economies. China and India, in particular, have large protection gaps and low penetration levels. At the same time, economic development and infrastructure investment in Asia will require much greater levels of insurer and reinsurer support in areas like construction, surety and cyber, and increasingly life and health.

Asia Pacific: Adequate capacity to meet growing demand

April 1 is a major renewal date for facultative reinsurance business in some of the major territories in Asia Pacific, in particular Japan, South Korea and India.

The demand supply dynamic in the facultative market varies greatly by product and geography. Renewals this year are generally more orderly than in 2023, with adequate levels of capacity to meet growing demand for facultative reinsurance.

Asia Pacific presents a significant opportunity for the facultative reinsurance market. Beyond Japan, facultative reinsurance in the region is not as proactively utilized as it might be.

Japan: Turning point for catastrophe market

Japan: Turning point for catastrophe market

The Japanese catastrophe reinsurance market has reached a turning point, although property risk, engineering and casualty lines remained somewhat challenging at the April renewal.

April 1 is the key renewal period for Japan, with more than 95% of reinsurance renewing, including some of the world’s largest catastrophe programs.

In contrast to last year’s renewal, which resulted in a material increase in reinsurance spend for Japan’s insurers, property catastrophe capacity was more than ample at 4/1, resulting in greater competition and over placement. As a result, property catastrophe business renewed at stable pricing to small risk adjusted reductions.

Broadly, reinsurers are now more confident and are working hard to grow or protect their positions, creating opportunities for insurers to leverage increased competition for catastrophe business to the benefit of their wider portfolios.

Major catastrophe events aside, much improved returns and increasing competition should translate to an unwinding of excessive price increases at future renewals and a new market equilibrium, according to Global Natural Catastrophe Report: Q1 2024 Insurance Insights.

The April 1, 2024 renewal of the global property catastrophe market continued the positive trends observed at the beginning of the year, displaying a more orderly and predictable process.

The market dynamics are increasingly favoring Japanese insurers as the capacity expands amid stable demand.

At this renewal, reinsurance capacity grew as market participants regained confidence and aimed to expand their presence in property catastrophe. This increase in supply benefited from favorable foreign exchange rates, with the Japanese Yen depreciating by about 15% against the U.S. dollar from the previous year, enhancing the value of capacity that foreign reinsurers could deploy.

Japanese insurers leveraged this increased reinsurance appetite for catastrophe risks effectively during the April renewals.

They optimized their signing strategies to bolster support for more challenging lines of business and enhance their overall portfolio.

While insurers concentrated on maximizing the benefits from reinsurer capacity allocations, reinsurers adopted a flexible and holistic approach to meet the evolving needs of insurers.

South Korea: Stable market, predictable reinsurance renewal

South Korea: Stable market, predictable renewal

April is the second largest renewal for Korea’s insurers, with around 40 percent of the market premium renewing.

Following challenging renewals in 2023, the Korean reinsurance market was stable at April 1, with more than adequate capacity for property catastrophe risks.

Following several consecutive years of both man-made and natural catastrophe losses, the Korean property treaty reinsurance market underwent a dramatic adjustment in January and April 2023, with a doubling of premium rates and retention levels on excess of loss covers, while commission rates almost halved for pro-rata reinsurance.

In contrast, this year’s April renewal was more predictable. Insurers entered the renewal with a clear understanding of reinsurer expectations, while reinsurers were more alive to the needs of insurers.

While there were no substantive changes to catastrophe pricing, program structure or conditions 4/1, insurers were able to push for limited improvements.

Most property programs renewed on April 1 with terms similar to those expiring, incorporating technical adjustments for changes in exposure and reduced loss reserves from past claims.

Event excess-of-loss pricing remained stable, showing either no change or a slight increase in the low single digits.

Some risk excess-of-loss programs renewed with minor reductions on a risk-adjusted basis, following a significant increase in 2023 due to improved performance in the primary market.

Pro-rata reinsurance terms stayed consistent with those in 2023, which included higher adjustments to loss participation clauses and decreased treaty limits.

In the per-risk excess of loss market, capacity remains limited, and reinsurers have become more selective following significant fire losses in 2021 and 2022. The per-risk market saw substantial adjustments in 2023, with some accounts facing increased deductible levels at the renewal on April 1, 2024.

China Reinsurance Market: Robust despite economic slowdown

China: Robust market despite economic slowdown

Sandwiched between the main renewal in January and catastrophe-driven renewals at mid-year, April 1 is a relatively minor renewal for China’s insurers. That said, 4/1 saw the consolidation of favorable trends witnessed at the January renewals and an easing of market conditions from 2023.

Dominated by onshore reinsurers, China’s reinsurance market is largely driven by domestic underwriting performance, and less by global market cycles.

Despite a downturn in the property market and a slowdown in economic growth, China’s nonlife insurers continue to demonstrate resilience. Longer term, a large protection gap and big investment in renewables and high tech sectors will support increased demand for both traditional and alternative reinsurance capacity.

The economic downturn and real estate challenges in China’s market in 2023 have not significantly affected the insurance and reinsurance sectors. Non-life insurance, a necessity for many, continued to see growth with a 3.2% increase in premiums in 2022 as reported by Swiss Re.

As China progresses in its economic development, it is heavily investing in infrastructure, high-tech sectors, and renewable energy. These investments are stimulate further growth and boost demand in the non-life insurance and reinsurance markets.

In 2023, a series of floods, including severe incidents in Beijing, caused damages totaling over $32 billion, accounting for half of all losses in the Asia-Pacific region for the year.

Despite the extensive damage, reinsurers experienced minimal impact due to the low penetration rates of natural catastrophe insurance in China. Only $1.4 billion of the flood damages were insured.

China records the highest global volume of uninsured losses, averaging $54 billion annually since 2000, with typically less than $2 billion insured.

The country’s growing interest in catastrophe bonds is evident, exemplified by Aon’s structuring and placement of a $30 million catastrophe bond for China Reinsurance Group in 2021—the first of its kind issued from Hong Kong.

Given China’s significant exposure to earthquakes, floods, and windstorms combined with low insurance penetration, the catastrophe bond market holds substantial potential for long-term growth.

India: Minimum risk rate slows reinsurance renewal

India: Minimum risk rate slows reinsurance renewal

April 1 is the main renewal for India, with almost all the country’ property/casualty insurers purchasing reinsurance protection, across all lines of business.

With a fast growing economy, a pro-active regulator, and an appetite for technology and innovation, India’s increasingly liberalized insurance sector is on an upwards trajectory.

India is predicted to have the fastest growing insurance sector of all G20 countries in the coming five years, according to Swiss Re. As a rapidly developing market, India presents new opportunities for reinsurers.

Closing the country’s large protection gaps and supporting the growth of new and existing lines will require significant additional capacity, as well as innovation.

Natural catastrophe losses were a significant issue at 4/1, with floods events over the past twelve months hitting reinsurance treaties. Heavy rainfall in July last year resulted in severe flooding and damage to hydropower plants in India, generating potentially large losses for property insurers. Following the floods, re/insurers have imposed natural catastrophe limits on hydropower plant risks in India.

For some occupancies, reinsurers are requesting cession pattern to shift to a ‘sum insured’ basis from the current ‘probable maximum loss’ model.

The move will be a significant change for the property market, albeit incremental and spread over many years.

Despite exposure to earthquakes, cyclones and floods, non-life insurance premiums as a percentage of GDP in India are relatively low at around 1%, resulting in a sizable protection gap.

Between 2015 and 2023, natural disasters in India caused an estimated $49.02 billion in damage, of which just $3.45 billion was insured, according to Aon.

In 2022, the government launched an “insurance for all” initiative, which aims to give every person and company access to insurance by 2047.


AUTHORS: George Attard – CEO of Asia Pacific, Aon Reinsurance Solutions, Geoffrey Lambrou – CEO of Aon Facultative Solutions, Asia Pacific, Reinsurance Solutions, Philippe Sommer – CEO of Japan & Nick Bayman – President, Japan London Aon Team, Reinsurance Solutions, YB Lee – Managing Director, South Korea, Aon Reinsurance Solutions, Qin Lu – CEO of Greater China

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