2024 Global Reinsurance Market Outlook

Property catastrophe renewals in Japan reinforced the positive trends seen in the U.S. at 1/1, with pricing flat to slightly reducing, while South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.

While pricing renewed flat to down modestly for property catastrophe reinsurance across the region, certain Asia Pacific markets and product lines remain challenged and subject to a tightening of terms and conditions, including property per-risk reinsurance, industrial fire accounts, certain natural catastrophe loss-affected regions, and U.S. exposed casualty treaties, according to Aon’s Reinsurance Market Dynamics report.

Reinsurance Supply-Demand Dynamic

Since January 1, reinsurance market conditions have increasingly favored buyers. Last year began with limited capacity for property catastrophe coverage. However, by 2024, a significant increase in supply led to abundant capacity, driven by appealing risk-adjusted returns for property catastrophe reinsurance.

At the end of 2023, the total capital in the reinsurance industry reached $670 bn, nearly matching the peak levels of 2021. This growth was fueled by robust performance, a recovery in asset values, and a record year in the catastrophe bond markets.

The substantial reset in the property catastrophe reinsurance market on January 1, 2023, markedly improved the position of reinsurers. Despite global natural catastrophe insured losses totaling $118 bn in 2023 — the fourth consecutive year losses surpassed $100 bn — many reinsurers reported strong financial outcomes.

This reflects a market shift where cedants took on higher retentions. Early analyses indicate that global reinsurers achieved an average combined ratio of around 90 percent and an average return on equity of about 18% in 2023, marking one of the sector’s best performances to date.

Catastrophe market transitioning

The global property catastrophe market is in a period of transition, although various markets are at different stages of the cycle. With attractive returns, reinsurers have turned their attention to growth, increasing competition for higher catastrophe layers, according to Global Reinsurance Market Report.

Global reinsurance dedicated capital totalled USD729 billion at full-year 2023, a rise of 12% versus the restated full year 2022 base. Growth was driven by both the INDEX3 companies and non-life alternative capital.

All things being equal, increased supply will continue to put downwards pressure on pricing and support broader coverage terms and conditions in property catastrophe reinsurance. However, reinsurers are maintaining a tight grip on retention levels, and show little sign of giving way.

In 2024, the ability of reinsurers to maintain their earnings will be crucial for attracting capital and enhancing investor support, particularly in the context of catastrophe losses.

The estimated global catastrophe losses for the first quarter of 2024 amount to at least $11 bn, a significant decrease from the $30 bn recorded in the same period in 2023.

This reduction is due to the lesser impact of severe convective storms (SCS) and winter storms in the United States, compared to the previous year that included a major earthquake in Turkey in February and two consecutive billion-dollar disasters in New Zealand.

As the mid-year renewals commence in catastrophe-prone markets such as Florida, Australia, and New Zealand, the trend of positive renewal conditions observed at the start of the year is expected to persist. These conditions include sufficient capacity for traditional occurrence property catastrophe risks and increased pricing competition.

The reinsurance market currently presents opportunities for reinsurers to deploy excess capital in attractively priced lower layer covers, and to accommodate the growing demand for higher limits.

This demand, potentially increasing by as much as $7 billion from U.S. insurers, is driven by adjustments for inflation and evolving risk perceptions, alongside a revitalized market in Florida.

Forward-looking reinsurance renewals

With the challenges of 2023 behind us, the insurance and reinsurance market is now entering its next phase. There is still significant unmet insurer need, including solutions that address earnings volatility such as structured solutions and aggregate covers (see about Underwriting Margins for Reinsurers).

At 4/1 reinsurance renewals, reinsurers have been more flexible in this regard, with growing opportunities for insurers to leverage competition among reinsurers for the attractive higher catastrophe layers to secure protection across their program.

For regional insurers that renew at 1/1, the remainder of this year will be critical. Faced with heightened frequency of natural catastrophes and increased net retentions, regional insurers are making considerable progress in terms of underlying rate and structural adjustments to portfolios.

Global Reinsurer Capital and Catastrophe Bonds

Aon estimates that global reinsurer capital rose by $95 billion to $670 billion over the year to December 31, 2023, representing recovery close to the level seen at the end of 2021.

The increase was principally driven by retained earnings, recovering asset values and new inflows to the catastrophe bond market.

Global Reinsurer Capital Dynamics ($ bn)

Traditional reinsurance capital: Rebound nearly complete

Aon estimates that shareholders’ equity reported by global reinsurers increased by $80 billion to $562 billion over the year to December 31, 2023, representing a substantial recovery from the $97 billion decline seen over the course of 2022.

It should be noted that the reduction in reported equity in 2022 was largely linked to the sharp increase in global interest rates, which had the effect of reducing the market value of existing lower yielding bond portfolios on (re)insurance company balance sheets.

Global Reinsurer Capital — Quarterly Progression

Reported equity fell by $112 billion over the nine months to September 30, 2022, but has since recovered by $95 billion. The main drivers have been strong underwriting results, higher ordinary investment yields and the aforementioned pull to par effect.

Reinsurance Sector Performance

Strong performance by reinsurers has caught investors’ interest, evident from high attendance at several industry conferences early in 2024. This growing interest is promising, though it hasn’t yet led to the formation of new companies, mainly due to ongoing concerns about the effects of climate change and social inflation on future losses.

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FULL Report — https://beinsure.com/reinsurance-capital-catastrophe-bond-market/