A shift in the market

Aon’s Tracy Hatlestad outlines the main topics of discussion points for property reinsurance ahead of the 2023 Rendez-Vous.

Which topics will be driving conversations at the 2023 Rendez-Vous?

This year we expect discussions to focus largely on several specific topics. First and foremost, we expect a more orderly renewal season at 1 January, barring any significant ceded events throughout the next few months. Insurers will be aiming to balance consistency in coverage with collaborative relationships that endured the 2023 renewal season. We believe broader consistency is important for everyone in the market.

Secondly, we expect many discussions will centre around frequency and/or secondary perils. The restructuring of the occurrence product through increased retentions shifted coverage to the tail, and you can observe this in the results of insurers, which have retained more catastrophe loss net in 2023 – especially for secondary perils. With pricing today at a level that supports stronger returns for reinsurers, the ability to offer additional frequency protection is going to be a topic for many insurers. It is important to note that this does not mean a reinstatement of aggregate as we saw in the past; there are alternative features to the product available for 2024, which can bridge some of the gap between supply and demand.

Last year the discussion was all about capacity, how has that evolved this year?

We have seen a shift in the market since this time last year. Additional reinsurance supply started to return globally late in the first quarter, evidenced by top-up purchases by insurers. In the US, where insurers place around half the limit in the region in Q2, we saw reinsurers authorising additional capacity during the June and July renewals. As is often the case, that initial additional supply was based on a flight to quality, a dynamic that was seen often during those renewals.

While we have not seen any new companies forming, additional capacity is entering the space through existing players. Additionally, the breadth of supply has widened beyond the early growth play reinsurers, to a broader market bringing additional capacity. Overall, pricing and portfolio returns continue to be aligned to investors’ expectations and demands.

As we look to 1 January, we expect sub-10 percent demand increases globally for traditional property catastrophe reinsurance, as many insurers that typically renew in January were able to secure additional limit throughout the year, which will offset some of the demand we might have seen. This outcome is also partially driven by the increased capacity provided through the ILS market, where catastrophe bond issuances are likely to reach a new high in 2023.

That said, individual markets and cedant demands will still vary, as some have seen more heightened loss activity than in prior years.

How important are relationships given the current market dynamics?

We think strengthening and rebuilding relationships will be a key factor at the January renewals, especially for reinsurers seeking growth. For those reinsurers, it comes through aligning priorities to insurers’ requirements – again, such as for aggregate cover – and also being transparent about pricing and capacity throughout the renewal. With the amount of data now collected on quotes and authorisations, insurers can better understand the strategies of individual markets and can discern collaborative patterns through the data. Our sector has not had this level of robust data in prior harder market periods.

Insurers should focus on providing quality data to reinsurers, so they can properly evaluate the risks. Insurers that achieve this will have considered such areas as inflation and insurance to value, the demonstration of superior claims handling, and a strong view of portfolio risk.

Any other areas you expect discussions to focus on this year?

Dislocation in the market is also a topic of interest. Over the past six years in particular, much of the discussion has centred around Florida, and despite some signs of progress, that focus remains. Citizens is near its peak policyholder level at a time when the Florida Hurricane Catastrophe Fund is at its lowest cash position in years. There are positive signs there too, but it’s definitely a market in transition. More recently we’ve seen a dislocated market in California, where we expect continued shifts to E&S products as many of the highest market share insurers have announced departures due to lack of adequate rates for catastrophe risk in particular.

There will also be discussions around the change in impact of retro, as the building of portfolios of property catastrophe has shifted to a gross underwriting perspective for some reinsurers. As an overarching comment, there’s definitely an opportunity for reinsurers to provide the best product and service to insurers in this market, in a way that is sustainable. The volume of buyers and sellers has increased, and as the renewal evolves we expect this will be displayed in the range of unique capacity solutions that become available, both on an individual and portfolio level basis.

Tracy Hatlestad is executive managing director and global property segment leader at Aon