Aon plc is warning that risks, as they continue to grow and evolve, could threaten to make the insurance industry less relevant to customers. “Relevance is central to growth. We believe the industry has untapped growth potential,” they write in Aon’s recent report, Ultimate Guide to the Reinsurance Renewal.
The report in particular notes the robust financial results achieved by the reinsurance sector, all while the industry faced increasing losses and increasing complexity of risk. They say some of the industry’s largest reinsurers reported a return on equity of more than 25 per cent.
“Global reinsurer capital reached a record high of $695-billion at June 30, 2024 (figures in U.S. dollars) – an increase of $25-billion compared to year end 2023. This increase was primarily driven by retained earnings, new inflows to the catastrophe bond market and recovering asset values.”
They say renewals in 2024 have seen reinsurance pricing gradually decrease. “Aon forecasts an increase in pricing competition in 2025, and that insurers will begin to see greater flexibility around capacity provision and coverages.”
Lean into opportunities
Rupert Moore, Aon’s UK CEO of reinsurance solutions says the reinsurance industry can either lean into the opportunities created by a world of changing risk or retrench and watch as more risks are shifted to the public sector and capital markets.
“If the reinsurance market is to provide real value, it must play a more active role in helping insurers to manage frequency losses and earnings volatility. If reinsurers continue to run from risk, it will force insurers to follow suit and we will all become part of a shrinking and less relevant industry,” he warns.
The firm’s estimates that only 31 per cent of economic losses caused by natural catastrophes were covered by insurance in 2023 is an opportunity, they say, to play a larger role in supporting economic resilience, growing into new markets and expanding appetites for existing products. “As risk continues to grow and evolve, we face the real threat of becoming less relevant to our customers,” the report states. It also looks at demand and supply by segment, providing commentary on capacity and factors influencing it, alongside any going concerns (Atlantic hurricane season among them) for each business line.
“Two-thirds of the way through 2024, the reinsurance sector remains on course to produce very strong results for the second consecutive year. Capital is building quickly from already very strong risk-adjusted levels,” the report adds. Absent very large catastrophe losses between now and the end of the year, they conclude saying there are clear signals significantly more reinsurance capacity will be available going into 2025 renewals.
