Material property-cat reinsurance hardening at April renewal: Aon’s Monaghan

Reporting this morning on the just completed April 1st reinsurance renewals, broker Aon has said that it is optimistic that the market is now on a more stable footing, although supply and demand are still “delicately poised.”

Aon’s Reinsurance Solutions is the second broker to use precisely that terminology, delicately poised, to explain how the supply-demand dynamic in reinsurance has developed through to April, after Gallagher Re explained market conditions that way in its report yesterday.

Overall, Joe Monaghan, Global Growth Leader Reinsurance Solutions at Aon, explained that, “The imbalance in property catastrophe reinsurance demand and supply at January 1 showed signs of easing at the April 1 renewal, where we were able to place property catastrophe limits, albeit at a price and with higher retentions.”

As mid-year renewal negotiations are now underway, “The demand-supply balance is delicately poised, yet we are optimistic that the market is now on a more stable footing following a turbulent 1/1,” Monaghan added.

Being a key renewal for the Asia pacific region, especially given the quantity of Japanese property catastrophe risks that renew, rate trajectory in that region has been seen to be more accelerated than the prior year, it seems.

Monaghan noted that, “The challenging renewal represented a material hardening for property catastrophe reinsurance programs in Asia Pacific, a market that has historically been more insulated from the global reinsurance cycle. However, the renewal was orderly, and programs were placed as per expectations.”

The re-pricing of catastrophe risks that began at the January renewals has continued in April, although with more moderation evident, given the regions renewing and a more measured approach taken by reinsurers.

Monaghan cited “very limited appetite for aggregate catastrophe coverage”, which suggests some buyers would still have been disappointed it seems, but he also said that “informed insurers anticipated the retention and price adjustments necessary to achieve their desired placement outcome.”

Monaghan continued to explain that, “Broadly speaking, property catastrophe capacity was adequate at April 1, but at a price. APAC experienced meaningful rate increases and adjustments to retentions, however, the impact was less severe than for U.S. and Europe at 1/1. The catastrophe market in Japan, in particular, benefited from robust pricing levels established in the wake of large quake and windstorm losses.”

Demand at April 1st was seen to be stable, helped by inflation generally being lower than Europe and the US, but while this renewal has left some grounds for optimism, Monaghan notes that only a handful of US property catastrophe reinsurance programs renewed, so we’ll need to wait for the mid-year renewals to really understand how supply-demand dynamics may play out.

“Market conditions for the remainder of 2023 and beyond will depend on future inflation, catastrophe losses and financial market stability,” Monaghan said.

Looking ahead, “Although challenging, we anticipate a manageable mid-year renewal, with capacity available at a price. All things being constant, the market should continue to stabilize, although inflation and 2023 catastrophe loss activity will be key,” Monaghan continued.

“However, for a prolonged sustainable market, reinsurers and investors will want to see improvement in returns before committing more meaningful capacity.”

While the number of US property catastrophe reinsurance programs renewing at April 1st are limited, risk-adjusted pricing increases were seen to be in-line with January, by Aon, although there was greater certainty on terms and conditions available.