Within reinsurance, pressure remains on the capital side, but opportunities are there and as the market has shifted, it’s getting to an equilibrium around pricing property catastrophe risks, according to executives at re/insurance broker Aon.
Greg Case, Chief Executive Officer (CEO) and Eric Andersen, President of insurance and reinsurance broker Aon, recently commented on what they’re seeing on the capital side within reinsurance and the potential opportunities going forwards, during the intermediary’s Q2 2023 earnings call.
“There’s still pressure here,” said Case. “There continues to be pressure on the capital side. We’re incredibly vigilant about finding options, matching capital with risk, in terms of what we do for our clients every day.”
Case explained that Aon is navigating through the changing market landscape, in which there’s movement on the insurance-linked securities (ILS) side.
It’s been an incredibly active year so far for the ILS sector, notably the catastrophe bond space, which saw record levels of issuance in the first-half of 2023 as both existing and new sponsors entered the market.
Year-to-date, Aon has assisted with the placement of 21 deals amounting to around $5 billion in risk capital issuance, which Case described as “phenomenal.”
“So, we have seen opportunity there. But it’s still constrained, it’s still pressured,” he added.
Expanding on the cat bond market, Andersen said: “Ultimately, we’re seeing investors that have historically invested in cat bonds, either allocate more to it, so they see opportunity, investors that had walked away from the area have sort of returned, as well as new.
“So, you’re seeing some expanded market opportunity, which is why I think that market has been so dynamic in the first six months.”
In terms of the overall capital provision in the reinsurance industry, Andersen asserted that there’s evidence of an equilibrium.
“You’re seeing the big players get more active, who see opportunities, especially on the property cat side. And you’re seeing investors look to participate in support, either through their funds or other ways, not necessarily in new company creation, which is sort of what would normally happen in this cycle, but more in support of existing players who are already leaders in the industry. So, we’re getting to an equilibrium around pricing property cat,” said Andersen.
“Certainly, as you go into the 1/1 renewals, you know, in five months, there’ll be talk of inflation, there’ll be talk of what happens over this hurricane season in the summer and other events, but I do think that as the market has moved, it has found an equilibrium in property cat, as well as on the casualty side of the business,” he added.
Property cat pricing continued to rise at the mid-year renewals off an already higher base achieved at Jan 1st, 2023, while terms and conditions tightened further as reinsurers look to make up for some costly years on the back of elevated cat losses and inflation.
Additionally, demand for protection is expected to rise further heading into the Jan 1st, 2024, reinsurance renewals, and with numerous sellers anticipating a continuation of current trends, many will be hopeful of getting more rate, especially in cat-exposed areas.
