Favorable Renewal in a Dynamic Reinsurance Market at Midyear

Aon's Reinsurance Market Dynamics July 2024 report highlights that insurers generally achieved favorable midyear renewal outcomes, with reductions in rates for property catastrophe risks and improvements in terms and coverage. Despite a more competitive market, volatility in secondary peril losses, heightened Atlantic hurricane forecasts, social inflation, and adverse reserve development in casualty maintain a dynamic landscape.

Contrasting with 2023, midyear capacity for US catastrophe-exposed business was more than sufficient to meet increased demand, with over $10 billion in additional catastrophe limit purchased by US insurers. The positive momentum from the January 1 and April 1 renewals continued through June 1 and July 1, driven by increased appetite from traditional reinsurance and insurance-linked securities (ILS) markets, resulting in downward pressure on pricing for US nationals and Florida specialist insurers, the latter seeing rate reductions for the first time in 3 years.

Renewals in Latin America and the Caribbean were also favorable, with ample capacity and risk-adjusted flat to single-digit rate increases. Insurers in Australia and New Zealand experienced stable market conditions, with around 80 percent of their property catastrophe reinsurance business renewed at midyear.

The report reveals that total reinsurance capital reached a record $695 billion by the end of Q1 2024, up from $670 billion at the end of 2023, driven by retained earnings, recovering asset values, and new inflows to the catastrophe bond market. Aon Securities estimates overall ILS capital increased to an all-time high of $110 billion in Q2 2024, with a record $46 billion of catastrophe bond limit on-risk. For the first time, more than $8 billion of catastrophe bonds were issued in a single quarter.

Reinsurers are generating robust returns, with annualized return on equity averaging around 20 percent in the first quarter of the year.

Steve Hofmann, copresident of US Reinsurance Solutions at Aon, said, "We are pleased to see the ongoing stability of the reinsurance market, which now presents profitable growth opportunities for both insurers and reinsurers. Over the past 18 months, we have advocated for this balance on behalf of our clients by introducing additional risk transfer capacity, and launching new technologies to enhance risk assessment and management."

Kevin Traetow, copresident of US Reinsurance Solutions at Aon, added, "Indeed, the ability to make quicker, data-driven decisions provides our clients with the clarity and confidence needed to navigate the market effectively."

For further details on midyear reinsurance renewal trends, see Aon's Reinsurance Market Dynamics July 2024 report.