US reinsurance: the regional view

Patrick Abbe, regional and mutual strategic growth leader, Reinsurance Solutions at Aon, reflects on a challenging, yet interesting, year for US regional insurers.

How have the significant changes in the property catastrophe reinsurance market impacted US regional insurers?

The reinsurance themes that have broadly impacted the overall US insurance market, especially at the beginning of 2023, also held true for regional insurers. In many cases, a combination of loss activity, challenged surplus positions and changing reinsurer appetites more heavily impacted the regional insurer segment. Broadly speaking, less-diversified portfolios and reinsurance programs supported by a smaller number of reinsurers proved problematic to navigate for many renewals. This represents a different dynamic from the past, when regional carriers were often able to mitigate the trends experienced by other segments of the market. For reinsurers, the 1 January renewal tide floated all boats – rate increases were achieved by reinsurers amid a general retraction in overall reinsurance market capacity. This led to greater retentions by regional insurers.

The mid-year renewal period was more settled and predictable for regional insurers than 1.1 – to what extent has this formed a more optimistic outlook for US regionals?

In many ways, what we saw at mid-year renewals was a natural reaction to this year’s 1.1 renewals where, post Hurricane Ian, the velocity and magnitude of change was very aggressive. Entire portions of the market were caught off guard. We were not terribly shocked by the movement, but the magnitude of the change was surprising for many. Likewise, the market’s hesitancy to deploy capital until later in the renewal timeline created a new phenomenon and challenge for many carriers to navigate. The environment is calmer now, with reinsurance underwriters having a clear view of business plans, available capacity and their underwriting authority. Additionally, the significant change in terms and conditions from last year has meant that discussions with reinsurers are generally focused on price for 2024, as opposed to additional coverage reductions. Additionally, we are seeing a controlled willingness among reinsurers to revisit some of the coverage reductions that were pushed through the market at start of the year. The combination of the awareness of buyers with greater organization and focus from reinsurers has led to a more orderly outlook for the coming months.

How is the higher frequency of secondary perils in the US impacting regional insurers? And how is this feeding into planning for future quarters?

This is a massive topic for the industry today. The heightened frequency of weather events has impacted a huge segment of the US market in 2023. That heightened weather activity is clashing with inflationary pressures and having a significant impact on regional insurer financial results. Additionally, geography is having a material impact on the segment, with the heightened weather activity occurring in portions of the country that are home to many regional insurers.

In light of this, we are spending a tremendous amount of time helping regional carriers evolve their business strategies and operations. This includes re-evaluating peak concentrations, supporting a more sophisticated approach to rate-making, building creative reinsurance solutions and revisiting opportunities to generate diversifying, profitable growth. The confluence of these efforts is re-shaped portfolios with a greater emphasis on diversification and profitability.

It’s comforting that through data and analytics we can provide a more robust explanation and quantification of risk. The outcome is partnering with our clients to make better decisions when it comes to building portfolios of risk that allow them to generate the sustainable returns needed to service their policyholders now and into the future.