Renewals in 2024 have seen reinsurance pricing gradually decrease, partly due to an increase in alternative capital to $110bn, and with rate reductions granted by reinsurers for the best-performing risks, says Aon, a leading global professional services firm.
Aon, in its “Ultimate Guide to the Reinsurance Renewal – September 2024” report, forecasts an increase in pricing competition in 2025, and that insurers will begin to see greater flexibility around capacity provision and coverages.
The report contrasts the robust financial results of the reinsurance industry against a backdrop of insurer losses and increasing complexity of risk. It also reinforces the untapped growth potential of the industry, highlighting that the key ratio of global insurance premium to gross domestic product has remained at approximately 1.8% since 2010, despite exposure growth and unmet client needs.
Despite natural catastrophe re/insurance payouts reaching $58bn (inflation-adjusted) during the first half of 2024 – well above the first half decadal average (2014-2023) of $47bn – reinsurers achieved an average common return on equity of 17.6% during the same period.
Unequal distribution of underwriting profit
Some of the industry’s largest reinsurers reported a return on equity (ROE) of more than 25% – well above that of most primary insurers and their own cost of capital – which could lead to higher growth, according to Aon’s performance analysis of 100 global re/insurers.
However, higher retentions in insurers’ catastrophe programmes reduced the capacity for frequency covers and resulted in an unequal distribution of underwriting profit across the insurance value chain.
The report reveals that global reinsurer capital reached a record high of $695bn at 30 June 2024 – an increase of $25bn compared to year-end 2023. This increase was principally driven by retained earnings, new inflows to the catastrophe bond market, and recovering asset values – where a survey group of re/insurers saw average annualised ordinary investment yields of 3.8% for the first half of 2024, up from 3.1% during the prior-year period.
More active role
Mr Rupert Moore, UK CEO of Reinsurance Solutions for Aon, said, “If the reinsurance market is to provide real value, it must play a more active role in helping insurers to manage frequency losses and earnings volatility. If reinsurers continue to run from risk, it will force insurers to follow suit and we will all become part of a shrinking, and less relevant industry. Aon is here to bring clarity and confidence around risk; shaping better decisions and highlighting profitable growth opportunities for all parties.”
The report highlights that re/insurers experienced significant volatility in 2024, with diverse events including earthquake and airline losses in Japan; the Baltimore bridge collapse in the US; historic flooding in Dubai, and the CrowdStrike global computer outage.
“Such losses reinforce recurrent, yet critical, themes for the industry – the growing interconnectivity and complexity of risk, volatility of losses, and the widening gap between insured and economic losses. The industry can either lean into the opportunities created by a world of changing risk or retrench and watch as a greater proportion of risk is retained or shifts to the public sector and capital markets,” Mr Moore added.