Aon have reported that insurers and reinsurers in the Canadian market are increasingly to turning to the alternative capital markets to navigate challenging conditions.
The broker notes that 2021 ended with positive results for the Canadian market, and profitable results for the global reinsurance market for the first time in many years.
This has not offset the poor results and returns reinsurers have observed in recent years, making attracting capital challenging, and this is further amplified by accelerated inflation and downward pressure on investment results.
The market expects to see climate change exacerbate catastrophe losses, particularly from secondary perils, which were a significant component of the 2021 losses.
Traditional capital declined by an estimated 5% to $548 billion over the first quarter in 2022, as re/insurers sought to place more risk with the capital markets following a record issuance year for catastrophe bonds in 2021.
But demand for catastrophe bonds currently outpaces supply, with the first half of 2022 proving more challenging as ILS investors have proven more selective and required improved structural terms and pricing.
Aon remains confident that the catastrophe bond market is positioned to match last year’s record issuance.
Global reinsurance capital was $645 billion at the end of Q1 2022, a $30 billion decrease from the end of 2021. However, diversification and increased margins increased alternative capital to $97 billion.
The overall 2021 financial results for the Canadian industry was a profitable 83.7% cumulative net combined ratio, an improvement to the prior year at 94.57%.
With the new market entrants observed throughout 2022, Aon also expects increased capacity and limits, resulting in a healthier competitive pricing environment for our clients.
“However, profitability continues to be top of mind for insurers so while there are positive signs, the market softens much more slowly than it hardens, and it could be a few renewal cycles before we see reductions generally,” the broker concluded.