Aon report suggests property cat market is softening
The property catastrophe reinsurance market is moving in favour of reinsurance buyers ahead of mid-year renewals, according to insurance broker Aon.
In its report on Reinsurance Market Dynamics, the broking giant said that having secured attractive returns in 2023, reinsurers were now pursuing growth, especially in the higher catastrophe layers while retaining a firm grip on retention levels.
It also said the Florida insurance market was bouncing back in the wake of litigation reforms and an increase in property catastrophe capacity,
“At the start of last year, property catastrophe capacity was constrained,” the report said. “Forward to 2024, and a dramatic shift in supply has resulted in ample capacity, driven by attractive levels of risk adjusted returns for property catastrophe reinsurance.
“At $670 billion, total reinsurance industry capital at year end 2023 is now close to the peak levels last seen back in 2021, driven by strong results and the recovery in asset values last year, as well as a record year for catastrophe bond markets.”
While the various property catastrophe markets were in different stages of transition, the report said: “All things being equal, increased supply will continue to put downwards pressure on pricing and support broader coverage terms and conditions in property catastrophe reinsurance. However, reinsurers are maintaining a tight grip on retention levels, and show little sign of giving way. “
The report said pricing was favourable for US insurers in the April 1 renewal, setting the stage for this to continue in the mid-year renewals, where volume is heavier.
“The positive direction taken by the US 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,” the report said. “We 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.”
Outside of Florida, Aon said mid-year renewal discussions were happening earlier with “reinsurers ready to provide indications and lock in capacity”.
“There is a broad desire amongst catastrophe reinsurers to write larger lines in 2024 and supply will be available for insurers looking to purchase additional limit,” Aon said. “As such, pricing improvement and enhanced consistency on terms is expected to continue heading into mid-year renewals.
“There is also an openness amongst a growing number of reinsurers to consider supplemental covers absent in 2023, and an acceptance that insurers will push to standardise terms when allocating lines.”
Aon said US insurers were 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 materialise. Positive responses from reinsurers continue to manifest, and we are seeing a growing number of reinsurers writing specific regional programmes for the first time.
“As reinsurers continue to acknowledge and respond to the portfolio, underwriting and structure enhancements made by US regionals, the overall market for the segment will continue to stabilise.”
The report said Florida’s insurance market had turned the corner, with most of the state’s property insurers returning to profit.
“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 million improvement in net underwriting margin for 2023,” Aon said.
“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.”
The report also said the Japanese catastrophe reinsurance market had reached a turning point “although property risk, engineering and casualty lines remained somewhat challenging at the April renewal”.
Aon said that more than 95 percent of Japan’s reinsurance renewed at April 1, “including some of the world’s largest catastrophe programmes”.
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.”
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