With the fourth quarter of the year being an important time for the property insurance market, particularly as the peak reinsurance renewal season approaches, brokerage giant Aon has made catastrophe bonds the top recommendation for insurers seeking to get through what may be a difficult period.
Aon’s latest global insurance market report highlights alternative capital solutions as a key lever for customers looking to make their end-of-year experience easier.
Looking ahead to 2024 renewals, Aon believes that prices for nat cat reinsurance are expected to remain high, despite some increases in capital levels across the sector.
Reinsurance capital increases were largely driven by retained earnings, asset value recovery and new capital flows into the catalytic bond market, Aon said.
At the same time, the underwriting and operating returns of traditional reinsurers have improved since the start of the year, thanks to the increase in insurer prices and portfolio retention, stricter definitions of risks in the general conditions of reinsurance and improved investment income.
At the same time, Aon also believes that reinsurers are now focusing again on social inflation, as economic inflation begins to ease.
All of this means the reinsurance market has adopted “a very disciplined and rigorous Nat Cat underwriting approach”, Aon said.
An additional supply of reinsurance capacity is proposed, but on the basis of a flight to quality, the brokerage group noted.
Leaving reinsurers “cautious, but responsive” to the frequency coverage needs of major insurers as the 2024 renewal season fast approaches, Aon said.
Insurers face a host of challenges to their relevance and business models, notes Aon, from how to manage underinsurance, geopolitical risks, supply chain risks and potential business interruptions. ‘activity.
The state of the reinsurance market at the end of the year is considered an additional factor and although this should be easier for insurers, Aon provides some advice to its clients on how to achieve the best results at the end of the year. ‘year.
Chief among these is a recommendation to consider alternative capital solutions, such as the catastrophe bond market.
It is worth noting that this trend is being billed this year, as the catalytic bond market is increasingly seen as a source of efficient reinsurance capacity, ready to meet the needs of insurers. .
Other recommendations from Aon include differentiating the portfolio with a personalized view of risk and robust data, directly addressing reinsurers’ concerns about inflationary impacts, using market data to guide investment decisions, and measuring and quantifying the impact of rating agency changes in the reinsurance program or structure.
With the catalytic bond market pipeline already bloated with emissionsThere are 15 catalytic bonds in the market and waiting to be valued or settled now, questions may arise as to how many the market will be able to absorb by the end of the year.
But the cat bond market is generally active in the first quarter as well and insurers would do well to consider how they can cover their traditional reinsurance needs at the end of the year, while also turning to the cat bond market for higher brackets until January and until the end of the year. February, or beyond as well.
Brokers, such as Aon, see the cat bond market as a source of capacity that can help insurers weather this year’s tough renewals, given that demand for coverage appears to be increasing in reinsurance tower areas where cat bonds may be the most efficient, while traditional reinsurers are more willing to assist at levels where the cat bond market is more reluctant to deploy its capital.
All this has led to several new sponsors in the catalytic bond market in 2023 and, taking into account the recommendations of brokers, such as Aon, we expect this high activity in the catalytic bond market to persist in 2024 as well.