Most challenging reinsurance period in a generation: Aon

Global growth leader – reinsurance solutions at Aon, Joe Monaghan, said that the reinsurance market underwent a fundamental shift in pricing and risk appetite, particularly property catastrophe risk.

Writing in the Aon Reinsurance Market Dynamics report, Mr Monaghan said: “Following six years of underwhelming returns and above average catastrophe losses (capped by Hurricane Ian in late September of 2022), the market had started to experience firming in 2022.

“Different from prior market cycles, there were a number of exogenous factors including 40-year record inflation, unrealised investment losses driven by a precipitous rise in interest rates, dramatic foreign exchange moves, climate change driving evolving investor sentiment, and a war in Europe, the reinsurance market took action to put itself back on an even keel.”

He added that 1 January saw pricing for US property catastrophe and global property retrocessional business hit multi-decade highs.

“Reinsurers moved away from frequency layers and sought to redraw the scope of property catastrophe protection with narrower coverage definitions and more excluded perils,” Mr Monaghan said.

“Insurers were challenged in navigating these changes, especially those that have not ceded losses and were not in peak zones, concerned that reinsurers were treating all buyers in the same way.”

According to Mr Monaghan, the reinsurance industry faces a moment of truth after being battered by events “outside of the loss experience that typically drives changes in reinsurance market terms and conditions”.

“Many of these variables remain and will be part of our industry’s landscape for the foreseeable future. This tumult comes on the heels of a global pandemic and war in Europe. Risk premiums have increased across asset classes globally. Uncertainty seems to be the order of the day,” he said.

“Insurance in its various forms has existed for thousands of years to provide stability amid unpredictable outcomes. Reinsurance has remained an important pillar of the insurance industry’s capital structure for hundreds of years, providing a flexible source of capital and risk transfer that can be easily adapted to support individual client needs”.