Aon : ‘Transitioning’ Property Catastrophe Sector Heralds Buyers’ Market at April Reinsurance Renewals

LONDON, March 28, 2024 - Aon plc (NYSE: AON), a leading global professional services firm, today announced the forthcoming launch of the latest report in its Reinsurance Market Dynamics series, which will provide a comprehensive analysis of the marketplace in the approach to the April 1^st 2024 reinsurance renewals - a key period for the Asia Pacific region.

The report, which aims to drive better business decisions, is scheduled to be launched on April 2^nd. It will reveal that, following a challenging period for cedents, market conditions since the January 1^st 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.

While around 60 percent of Asia treaty business renews at April 1^st, the period also has global significance, with some of the world's largest catastrophe programs 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 U.S. at the January 1^st reinsurance renewals, with pricing flat to slightly reducing, while South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.

While pricing was broadly flat for property catastrophe reinsurance, certain Asia Pacific markets and product lines remained challenged and subject to a tightening in terms and conditions - including property per-risk reinsurance; industrial fire accounts; certain natural catastrophe loss-affected regions; and U.S. exposed casualty treaties.

In terms of growth opportunities, April 1^st represents a major renewal date for facultative reinsurance - a risk transfer solution that is not utilized broadly across Asia Pacific. Reinsurers displayed an increased appetite for facultative business at the April 1st renewal, while new players continue to enter the market such as managing general agents.

April 1^st is also a key renewal period for the India market, with new opportunities for reinsurers given India's forecast position as the fastest growing insurance sector of all G20 countries over the next five years.

The report reveals that, at $670 billion, total global reinsurance capital is now close to the peak levels recorded in 2021, 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 estimates that overall ILS capital increased to $108 billion at year-end 2023, which marks a seven percent increase on the prior year, and an all-time high.

Despite global natural catastrophe insured losses totaling $118 billion in 2023, many reinsurers performed strongly, due to elevated reinsurance pricing and higher cedent retentions. Early analysis suggests that global reinsurers posted an average combined ratio of around 90 percent and an average return on equity of around 18 percent, representing one of the sector's best ever results.

George Attard, CEO of Asia Pacific for Aon's Reinsurance Solutions, said: "The April 1^st reinsurance renewals were more predictable and generally favorable to reinsurance buyers. 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. 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."

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

Aon forecasts as much as $7 billion of additional demand from U.S. insurers for property catastrophe limit at the mid-year renewals, as programs 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 $900 million improvement in new underwriting margin for 2023.

For further detail on April 1^st reinsurance renewal trends, please see Aon's Reinsurance Market Dynamics April 2024 report, which will be launched on April 2^nd, 2024.

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