Broker Aon has told clients to “prepare for alternatives” at the upcoming 1 January renewals as it takes steps to address any capacity shortfalls that may emerge for the Europe, Middle East and Africa (EMEA) region.
Tomas Novotny, co-CEO for EMEA at Aon’s Reinsurance Solutions unit, acknowledged that the biggest challenges may occur at the bottom end of programs and for aggregate cover.
“Our number one aim is to make sure we are always able to arrange alternatives,” he said.
“In the past, Aon has developed regional or global solutions for our clients where a certain scope of the Aon portfolio is written on an automatic basis.
“This has proved successful both for buyers, who can access capacity, and providers, who can access a well-diversified portfolio that would in many cases otherwise not be easily accessible.
“It is something we intend to augment going forward, as it can help to address potential capacity shortages in specific areas and regions, and ultimately build business resilience.”
Alfonso Valera, who serves alongside Novotny as co-CEO for the region, said there was also potential for catastrophe bonds to play a more significant role in the European market.
“There is still investor appetite for cat bonds globally, and issuance so far in 2022 is approaching a record high,” he said. “However, cat bond issuance historically has not been a strong feature of the European market – it has been very US-focused.
“Given the tightening of capacity for the upcoming renewals we will talk to clients about all available solutions, and we see cat bonds potentially playing a more significant role in helping to make risk transfer more efficient. This would also allow investors in these bonds to diversify their exposures away from the US.”
Ageas Re, which launched ahead of this year’s Rendez-Vous in Monte Carlo, has been the only notable newcomer in terms of European reinsurance capacity.
While both Novotny and Valera believe there is capacity in EMEA that can step in – if the price is right – both agree that the purchase of cat limit will rise in 2023 on the back of inflationary pressures.
“The discussion will be more around pricing and structure than capacity not being there,” Valera said.
While losses in the region are not on the scale of those experienced in Florida following Hurricane Ian, EMEA has seen another significant loss year with February windstorms, May/June’s French hailstorms as well as flooding in South Africa.
“As has been the case with many other recent events, and something that reinsurers find challenging, is that the losses have largely been from secondary perils,” Valera said.
This followed large losses in 2021 from Storm Berndt and subsequent flooding, which caused billions of dollars of insured losses in Germany.
“We are there to help our clients navigate this volatility,” Valera said. “They do need to be prepared for a more difficult renewal than before. Data is key – it is important our clients have the right information to hand in response to questions around inflation.”
“The key thing is to be prepared for alternatives,” Novotny added. “It is likely that the cat tower won’t be able to be placed in exactly the same way as it was in previous years – our message is that we will assist our clients to explore other options in order to secure optimal reinsurance protection going forward.”