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Reinsurance Market Dynamics
January 2023


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Andy MarcellAndy Marcell

  • Watch Andy Marcell’s interview last December in the midst of renewals, calling on the industry to come together to provide insurers with a resilient, stable and relevant reinsurance product.

    Aon is working hard to rebuild investor confidence, create additional capacity and ensure that reinsurers have access to the highest quality data and analysis to enable them to maximize their support of clients.

Fundamental Shifts and Enduring Truths

The January 2023 renewal marks a turning point for the reinsurance market, signaling a new reality for buyers. 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.

Five Things You Need to Know

1 Following six years of underwhelming returns and above average catastrophe losses, and faced with changing investor sentiment, the reinsurance market took action to put itself back on an even keel.
2 Pricing for U.S. property catastrophe and global property retrocessional business hit multi-decade highs at January 1.
3 Aon estimates that global reinsurer capital declined by 17 percent, or $115 billion, to $560 billion over the nine months to September 30, 2022.
4 The cat bond market grew year-over-year (as measured by limit outstanding); issuances outpaced maturities by $2.2 billion, or roughly 7 percent, consistent with the growth seen in 2021.
5 We see opportunities for diversification and growth beyond renewal, spanning the agriculture market, the U.S. mortgage reinsurance market which had a record year, and the robust casualty and specialty reinsurance markets should remain attractive.

Capital Optimization is More Important than Ever

Reinsurance remains an accretive source of capital for insurers when compared with debt and equity. However, the re-setting of the reinsurance market at January 1 has important implications for insurers’ capital management and balance sheet protection. 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.

Clients have many tools at their disposal to optimize capital efficiency and retained volatility. In 2022, Aon published a list of key considerations for a successful renewal upon which we have expanded below given lessons learned at January 1, 2023:

  • Consider alternative capital for optimal placement results
  • Discuss integrated placements across property and casualty leveraging a diversified portfolio
  • Access a new facultative facility for capacity for terrorism exclusions from property cat covers
  • Leverage strategic consulting and data analytics to refine risk appetite, adjust investment and underwriting strategies, or review business lines, as well as differentiate your portfolio at renewals
  • Explore structured reinsurance covers and legacy reinsurance solutions to manage volatility and free up capital to absorb higher retention levels and/or support growth opportunities
  • Articulate clearly how you underwrite for inflation and its impacts on your risk profile
  • Develop a custom view of risk to de-risk and reduce exposure concentrations, as well as to improve understanding of secondary perils and emerging risks
  • Understand your true cost of capital, including volatility of returns, which is critical to optimizing the long-term return on capital
  • Partner with a true client advocate to build long-term, strategic partnerships with reinsurers

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