More reinsurance capital to support well-structured aggregate covers at renewals

One of the takeaways from the Monte Carlo Rendez-Vous this year is that brokers are calling on reinsurance companies and ILS funds to provide more support for their clients frequency loss exposures and while the markets are in the main not overly keen, there is going to be more capital available to support this, including from some that will seek out well-structured aggregate opportunities.

The January 2025 reinsurance renewal posturing always begins in Monte Carlo and first out of the gates with a clear message to the market was Aon, whose Reinsurance Solutions division is asking reinsurance capital to “run towards risk” and help out on frequency or earnings protection for its clients.

That helped to set the tone and while the major reinsurers were unanimous in stating during briefings that they won’t change their stances on terms and coverage conditions, others are more open to exploring how to provide more aggregate limit options to insurers, so they can derive returns from this opportunity.

In our conversations in Monte Carlo over the last few days it was the smaller reinsurers and insurance-linked securities (ILS) funds that seemed most open to deploying capital to support aggregate or sideways coverage and earnings protection covers.

In fact, we spoke with a number of ILS fund managers that explicitly stated they have an appetite for this and that it is a larger appetite than a year ago, with mandates focused on delivering more protection a bit lower down the tower and to aggregates signed and ready to deploy at the January 2025 renewals.

So there is dedicated capacity that seeks out returns from these more challenged areas of the marketplace, but it is only going to be deployed if the terms and price are right, managers told us. We also heard that some retrocession focused collateralized markets may have a slightly larger appetite for aggregates this year.

Structuring is going to be key, if brokers are to secure their clients aggregate reinsurance limit at this year-end.

ILS managers all spoke about well-structured frequency covers, with robust event deductibles set at a relatively high-level.

That won’t suit every insurers, especially the more thinly capitalised that really wants a far smaller event deductible, or franchise. But managers are adamant they won’t be providing that kind of cover any more, suggesting it will be hard for those insurers to secure any aggregate protection again this year.

The other place in the market that aggregate focused limits may come from is any start-ups that come to market.

As ever, new reinsurance and ILS players typically need to be highly-competitive to deploy their capital, while also tending to be more open to alternative structures, such as aggregate coverage.

There is new capital coming to the market, although not in particularly large quantities. But this is another place more aggregate limit may be available for cedents.

Some of the larger property-catastrophe reinsurance specialists in Bermuda have also expressed some additional appetite for providing frequency coverage for clients at the end of year renewals, we found in conversations in recent days.

We don’t expect that appetite to be overly significant, while again these deals will need to be well-structured to secure the support required and event deductibles on aggregate covers will have to be far higher than they might have been a couple of years ago.

There is definitely a feeling among markets that expressing some, even limited, appetite for providing aggregate covers may help them in gaining access to the shares they want of the higher, per-occurrence catastrophe reinsurance towers. Unmodelled or less well-modelled perils, or all natural perils covers, are still largely seen as out of scope though, we understand.

This is the kind of give-and-take we’ve been talking about. There appears more flexibility in the market as a result, which will please both brokers and clients, while markets will double-down on scrutinising terms of aggregate covers to ensure they aren’t taking on undue or unexpected exposure.