The broker’s Reinsurance Market Dynamics report for April renewals points to signs of stability, after several torrid renewals for its reinsurance-buying clients.


Aon has released a Reinsurance Market Dynamics report to gauge the pricing picture for the reinsurance market at the 1 April renewals, and claims to show a rates picture approaching stability.

The reinsurance broker titled its summary “demand and supply in delicate balance”.

Demand was stable, reflecting relatively low levels of inflation in renewing Asia Pacific markets, Aon reported.

Capacity was available, but only at meaningfully higher prices and with adjusted retentions and tighter terms and conditions, according to the reinsurance broker.

Some reinsurers deployed additional catastrophe risk capacity and offered higher line sizes, aided by favourable exchange rate movements, the intermediary highlighted.

Aon has estimated global reinsurer capital declined by $100 billion in 2022, a 15% drop, to $575bn by the end of last year, principally driven by substantial unrealised losses on investment portfolios.

“Reinsurance demand and supply was more aligned at April 1, having been constrained at the end of 2022,” said Joe Monaghan, global growth leader, reinsurance solutions, Aon.

“New capital formation is limited, and investors remain concerned about the impact of climate change and inflation. However, the prospect of higher returns is expected to attract additional capital to the sector, particularly as the benefit of higher pricing and investment yields becomes visible in earnings,” he said.

The catastrophe bond market has bounced back in the first quarter of 2023, Aon revealed.

“At projected 2023 rate levels, the property cat market should be attractive to investors, and there were some encouraging signs at the April renewal that reinsurers are prepared to readily deploy capacity at the right terms,” Monaghan said.

“The catastrophe bond market is also back in full swing after a difficult fourth quarter, 2022. Pricing has tightened since the year-end peak and deal sizes have bounced back. We expect ILS inflows to continue in 2023, as the case for diversification is resonating given the broader environment,” he added

Signposting 2023

Hard market dynamics of high demand but limited supply, with steep rises in pricing and capacity tightly constrained, shaped the January renewal. These continued into April, Aon acknowledged, but the consequences were more moderate.

The April 1 renewal is an important calendar date for the global reinsurance market, with large programmes renewed in Asia Pacific, especially for earthquake-exposed Japan.

Even for Atlanticist reinsurance market players in the London, Bermuda, the US and Europe, the April renewals help signpost upcoming renewals such as those in May and June, ahead of the North Atlantic Hurricane Season, Aon highlighted.

“Only a handful of US catastrophe programmes renew in March and April, so meaningful trends cannot be drawn ahead of the important mid-year renewals. That said, risk-adjusted pricing increases were largely in line with the January renewals, although with more certainty regarding terms and conditions,” said Aon’s report.

There were also encouraging signs of capacity becoming available as reinsurers consider opportunities in the current market, the report suggested, noting reinsurers will want to see good returns for prolonged market stabilisation.

“US crop renewals were generally concluded later compared to recent years, as clients closely watched the market to ensure they could negotiate optimal terms. Reinsurers were more selective in how capacity was deployed, with some authorizing on stop loss programs subject to reduced limit ‘buffers’ and increases to minimum and deposit premiums,” the report said.

“This meant cedants had to take great care in estimating their premium so reinsurers did not waste any capacity. Reinsurers with diversified stop loss portfolios were generally profitable in 2022. However, the continued rise in commodity prices and the strength of the US dollar meant that more capacity is required for the 2023 programmes.

“The exit of a major reinsurer, a reduction in pro-rata capacity, and a large Brazilian loss from 2022 meant that there was reduced supply of capacity. Crop underwriters also had to compete with their property colleagues (a line that was seeing significant improvements in expected returns) for capital. As a result, price increases were necessary at renewal in order to fully place programs,” Aon added.