January Renewals Seen Ushering in New Reality for Reinsurance Buyers

January renewals marked a turning point for the reinsurance market and the beginning of a new reality for reinsurance buyers, according to Aon.

"It was the most challenging January 1 renewal in a generation as the reinsurance market underwent a fundamental shift in pricing and risk appetite, especially for property catastrophe risk," Aon said in its report, Reinsurance Market Dynamics January 2023.

The Aon report noted that after 6 years of underwhelming returns and above-average catastrophe losses—along with changing investor sentiment—the reinsurance market took steps to return to an even keel. Part of that effort saw pricing for US property catastrophe and global property retrocessional business hit multidecade highs at January 1 renewals, Aon said.

Aon also estimated that global reinsurer capital dropped 17 percent over the first 9 months of 2022, falling $115 billion from its year-end 2021 level to $560 billion.

Aon suggested that the resetting of the reinsurance market at January renewals has important implications for how insurers manage their capital and protect their balance sheets. "As the reinsurance market puts itself on more of a sustainable footing, traditional reinsurance is returning to its core role of protecting capital, which will potentially increase earnings volatility for insurers," the Aon report said.