Property catastrophe reinsurance sees ‘strong’ appetite on higher returns

At $670b, total global reinsurance capital is now close to the 2021 peak levels.

Reinsurance buyers saw a ‘dramatic shift’ in attitudes towards property catastrophe reinsurance thanks to attractive levels of risk-adjusted returns and with overall pricing flat.

Despite global natural catastrophe insured $118b in losses in 2023, reinsurers performed strongly thanks to elevated reinsurance pricing and higher cedent retention, noted global professional services firm Aon in a report. 

“Early analysis suggests that global reinsurers posted an average combined ratio of around 90% and an average return on equity of around 18%, representing one of the sector’s best ever results,” it added.

Certain Asia Pacific markets and product lines, however, remained challenged and subject to a tightening in terms and conditions.

These product lines include property per-risk reinsurance; industrial fire accounts; certain natural catastrophe loss-affected regions; and U.S. exposed casualty treaties, reports Aon.

Meanwhile, property catastrophe renewals in Japan reportedly reinforced the positive trends seen in the US at the January 1st reinsurance renewals, with pricing flat to slightly reducing.

South Korea, China and India also saw increased competition for catastrophe business, to varying degrees.

“The April 1st reinsurance renewals were more predictable and generally favorable to reinsurance buyers. As mid-year renewals get under way for the catastrophe-exposed markets of Florida, Australia and New Zealand, reinsurers are indicating a strong appetite for catastrophe risk,” George Attard, CEO of Asia Pacific for Aon’s Reinsurance Solutions. 

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“We would expect the positive trend of the January and April renewals to continue at mid-year renewals, with adequate capacity for property catastrophe risks and enhanced pricing competition. Insurers looking to purchase additional limit will also find adequate capacity to meet their needs,” Attard added.

Overall, at $670b, total global reinsurance capital is now close to the peak levels recorded in 2021, resulting from strong reinsurer results and a recovery in asset values in 2023, as well as a historic period for the insurance-linked securities (ILS) market. 

Aon Securities estimates that overall ILS capital increased to $108b at year-end 2023, which marks a 7% increase on the prior year, and an all-time high.

“Despite global natural catastrophe insured losses totaling $118b in 2023, many reinsurers performed strongly, due to elevated reinsurance pricing and higher cedent retentions. Early analysis suggests that global reinsurers posted an average combined ratio of around 90% and an average return on equity of around 18%, representing one of the sector’s best ever results,” global professional services firm Aon said in a report.

In terms of growth opportunities, the April 1st period represents a major renewal date for facultative reinsurance, according to Aon. 

“Reinsurers displayed an increased appetite for facultative business at the April 1st renewal, whilst new players continue to enter the market such as managing general agents,” it said in a news release.