Regional Reinsurance Renewals: April 2024

At 4/1 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, according to AON Reinsurance Renewals at April 2024 Report.

Reinsurance renewals at April 1 consolidated the progress made at 1/1, as ample capacity and increased competition for catastrophe reinsurance led to improved outcomes for the majority of insurers. The renewal signaled a further improvement in conditions and sets the stage for a more comprehensible reinsurance and catastrophe bond market at mid-year and into 2025.

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.

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.

Reinsurance rate increases for property catastrophe business are likely to slow to below 10% on average when contracts are renewed in January 2024. Improvements in underwriting margins will therefore be less significant than in 2023. Typically, two-thirds of non-facultative reinsurance business is renewed in January, mostly in Europe.

U.S. Reinsurance Market

April is a relatively light renewal for U.S. insurers, although several large national and global carriers renew at 4/1. For those U.S. and global insurers renewing at April 1, pricing was favorable. Programs had adequate capacity and some insurers took the opportunity to purchase significantly higher limits.

Faced with higher net retention levels, U.S. insurers are implementing fundamental changes to their underlying portfolios, including rate adjustments, changes to deductibles and coverage, and risk selection.

Although insurers are at differing stages of this journey, positive results are now beginning to materialize.

As reinsurers continue to acknowledge and respond to the portfolio, underwriting and structure enhancements made by U.S. regionals, the overall market for the segment will continue to stabilize.

Reinsurance capacity for property catastrophe risk in Florida is set to return and expected to meet increased demand at mid-year renewals.

Catastrophe bond activity for Florida property carriers is also at record levels, with almost $1 billion of bonds completed since 1/1/24 and over $500 million in the pipeline, not including Citizens.

APAC

April 1 is a key renewal for Asia, in particular Japan, South Korea and India. Around 60 percent of Asia treaty business is renewed at April 1, and as much as 95 percent in Japan.

Across the region, capacity increased at a time of stable demand. Reinsurers’ willingness to deploy capacity resulted in increased competition for property catastrophe at 4/1, with over placement returning for the most attractive risks.

However, insurers are increasingly able to leverage reinsurer appetite for high layer catastrophe risk to meet their wider needs.

Looking ahead, increased supply will create opportunities for insurers to achieve more favorable outcomes at future renewals.

y mid-year renewals for Australia and New Zealand are likely to follow the experience of 1/1 and 4/1, with growing appetite for catastrophe risk at current pricing and terms.

Adjustments to catastrophe programs in 2023 have seen a greater proportion of catastrophe losses in Australia and New Zealand retained by insurers.

With reinsurers on a firmer footing, the challenge is to channel capacity toward opportunities in fast-growing Asia Pacific economies. China and India, in particular, have large protection gaps and low penetration levels. At the same time, economic development and infrastructure investment in Asia will require much greater levels of insurer and reinsurer support in areas like construction, surety and cyber, and increasingly life and health.

Japan

The Japanese catastrophe reinsurance market has reached a turning point, although property risk, engineering and casualty lines remained somewhat challenging at the April renewal.

Major catastrophe events aside, much improved returns and increasing competition should translate to an unwinding of excessive price increases at future renewals and a new market equilibrium, according to Global Natural Catastrophe Report: Q1 2024 Insurance Insights.

The market dynamics are increasingly favoring Japanese insurers as the capacity expands amid stable demand.

At this renewal, reinsurance capacity grew as market participants regained confidence and aimed to expand their presence in property catastrophe. This increase in supply benefited from favorable foreign exchange rates, with the Japanese Yen depreciating by about 15% against the U.S. dollar from the previous year, enhancing the value of capacity that foreign reinsurers could deploy.

Japanese insurers leveraged this increased reinsurance appetite for catastrophe risks effectively during the April renewals.

They optimized their signing strategies to bolster support for more challenging lines of business and enhance their overall portfolio.

While insurers concentrated on maximizing the benefits from reinsurer capacity allocations, reinsurers adopted a flexible and holistic approach to meet the evolving needs of insurers.

South Korea

April is the second largest renewal for Korea’s insurers, with around 40 percent of the market premium renewing.

Event excess-of-loss pricing remained stable, showing either no change or a slight increase in the low single digits.

Some risk excess-of-loss programs renewed with minor reductions on a risk-adjusted basis, following a significant increase in 2023 due to improved performance in the primary market.

Pro-rata reinsurance terms stayed consistent with those in 2023, which included higher adjustments to loss participation clauses and decreased treaty limits.

In the per-risk excess of loss market, capacity remains limited, and reinsurers have become more selective following significant fire losses in 2021 and 2022. The per-risk market saw substantial adjustments in 2023, with some accounts facing increased deductible levels at the renewal on April 1, 2024.

China

Sandwiched between the main renewal in January and catastrophe-driven renewals at mid-year, April 1 is a relatively minor renewal for China’s insurers. That said, 4/1 saw the consolidation of favorable trends witnessed at the January renewals and an easing of market conditions from 2023.

Dominated by onshore reinsurers, China’s reinsurance market is largely driven by domestic underwriting performance, and less by global market cycles.

Despite the extensive damage, reinsurers experienced minimal impact due to the low penetration rates of natural catastrophe insurance in China. Only $1.4 billion of the flood damages were insured.

China records the highest global volume of uninsured losses, averaging $54 billion annually since 2000, with typically less than $2 billion insured.

The country’s growing interest in catastrophe bonds is evident, exemplified by Aon’s structuring and placement of a $30 million catastrophe bond for China Reinsurance Group in 2021 — the first of its kind issued from Hong Kong.

Given China’s significant exposure to earthquakes, floods, and windstorms combined with low insurance penetration, the catastrophe bond market holds substantial potential for long-term growth.

India

India is predicted to have the fastest growing insurance sector of all G20 countries in the coming five years, according to Swiss Re. As a rapidly developing market, India presents new opportunities for reinsurers.

Closing the country’s large protection gaps and supporting the growth of new and existing lines will require significant additional capacity, as well as innovation.

Natural catastrophe losses were a significant issue at 4/1, with floods events over the past twelve months hitting reinsurance treaties. Heavy rainfall in July last year resulted in severe flooding and damage to hydropower plants in India, generating potentially large losses for property insurers. Following the floods, re/insurers have imposed natural catastrophe limits on hydropower plant risks in India.

The move will be a significant change for the property market, albeit incremental and spread over many years.

Despite exposure to earthquakes, cyclones and floods, non-life insurance premiums as a percentage of GDP in India are relatively low at around 1%, resulting in a sizable protection gap.

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FULL Report — https://beinsure.com/global-reinsurance-renewals-capacity/