Reinsurance: During January renewals, cross-programme support aids in navigating extreme volatility.

The most recent "Reinsurance Market Dynamics" report, which examines the challenging reinsurance renewal period beginning on January 1 and the changing market dynamics, has been released by Aon, a global professional services company.

Due to a clear mismatch in demand and supply, the property sector experienced the most challenging conditions during the renewal season. After a string of poor results since 2017, insurers' desire to buy more limit collided with reinsurers' need to reduce volatility and increase profitability. During this time, Aon's Reinsurance Aggregate has achieved an average return on equity of 5% and a combined ratio of 101 percent.

The renewals took place in the midst of high inflation, significant erosion of reinsurer equity as a result of a sudden rise in interest rates, and limited availability of retrocession capacity following Hurricane Ian in late September 2022, which added to the difficulties.

Global reinsurance capital, according to Aon, decreased by 17% to $560 billion over the nine months ending September 30, 2022.

Retentions increased as reinsurers attempted to move further away from frequency layers, and terms and conditions were also tightened as a result of the global pricing shift for property catastrophe and retrocession coverage. For insurers that were not in peak zones and had not conceded losses, the materiality of these changes was difficult.

Casualty reinsurance In contrast to property, the market for casualty reinsurance continued to have a lot of capacity throughout the renewals period due to reinsurers' increased appetite for the class. Taking advantage of certain reinsurers' desire to identify diversified growth opportunities, this prompted a number of cedents to investigate the possibility of developing cross-programme support for casualty portfolios in order to increase property catastrophe capacity.

"The latest reinsurance renewal period was characterised by fundamental shifts in market dynamics as reinsurers reset pricing, attachment points, and return expectations, especially for property risk," stated Mr. Joe Monaghan, global growth leader for Aon's Reinsurance Solutions. Additionally, because many reinsurers saw the dislocation at January 1 as an opportunity to expand their client portfolio, it caused stress in numerous long-term client/reinsurer relationships as well as the emergence of new relationships.

The "Reinsurance Market Dynamics" report reveals that well-informed insurers began the renewal process early, exploring a wide range of program options and structures, protection solutions, and capacity providers, and taking a pragmatic approach. In spite of the difficult circumstances, cedents that were earlier to market and more advanced in securing firm orders were in a better position to fill capacity gaps.

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