Mid-year renewals to see significant increase in US property cat capacity demand: Aon

Broking giant Aon is anticipating a “significant increase in demand” for property catastrophe reinsurance capacity at the upcoming mid-year renewals, with market conditions expected to continue developing favourably for buyers.

“The positive direction taken by the U.S. 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,” Aon’s Reinsurance Solutions has explained.

Saying, “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.”

The broking group notes that earlier renewal discussions are now happening on a significant number of US programs, while reinsurers are “ready to provide indications and lock in capacity.”

Among those reinsurers targeting property catastrophe risk, there is a “broad desire” to write larger lines in 2024, which positively for cedents means that “supply will be available for insurers looking to purchase additional limit.”

“As such, pricing improvement and enhanced consistency on terms is expected to continue heading into mid-year renewals,” the Aon Reinsurance Solutions team explained.

In addition to which, the broker believes there is now more openness among reinsurers to consider providing the kind of supplemental covers that had been absent from the market in 2023.

While there is also an acceptance that insurers will be looking to push more standardised terms across allocated lines.

For regional US insurance carriers, the efforts taken to improve portfolios are having a positive effect, Aon believes, with reinsurers increasingly showing a positive response to them.

“We are seeing a growing number of reinsurers writing specific regional programs for the first time,” Aon said.

Further noting that, “As reinsurers continue to acknowledge and respond to the portfolio, underwriting and structure enhancements made by U.S. regionals, the overall market for the segment will continue to stabilize.”

The Florida market is at a “dynamic” point in its history, Aon notes, as “legislative reforms and underwriting actions helped the market turn the corner.”

This bodes well for the June 1st renewals, when most Florida specific reinsurance towers renew.

The broker highlights that, “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.”

Market dynamics in Florida are also set to result in a major shift of risk back to the private sector, Aon states.

Explaining that, “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.”

The increased demand is expected to be met though, with reinsurance capacity for property catastrophe risk in Florida “set to return and expected to meet increased demand at mid-year renewals.”

In addition, the catastrophe bond market is playing a key role and “Catastrophe bond activity for Florida property carriers is also at record levels,” Aon says.

The broker counts almost $1 billion of Florida risk ceded through cat bonds through the start of 2024, while a number of cat bond deals remain in the market as well.