Mid-year renewals bring rate-taming capacity; equilibrium still elusive

Reinsurance capacity constraints appeared to ease through the mid-year 2023 renewals, helping grease a more orderly renewal and slow rate gain in some key segments, but demand for reinsurance will continue to push the pace, global insurance brokerage  Aon has said.

“Property catastrophe capacity at mid-year was ample,” analysts wrote in a report on the mid-year renewals.

Capacity may be well below levels seen one year prior after bond market mayhem, but recent profits in the industry have started the rebuild, most recently adding 5% to underlying capital for traditional reinsurance. At least one wing of the ILS market is adding more on top.

By the time of mid-year renewals, that meant increased offer, including cases of oversubscription on top layers on some US national programmes, Aon said.

“With capacity constraints easing, rate increases for US property catastrophe reinsurance at mid-year began to moderate,” authors claimed.

Risk-adjusted rate increases for US and notably Florida property catastrophe covers slowed from the January 1 pace to an average of 25-30%. Retentions also continued to rise from prior year levels.

From Aon’s view to the market, the new property cat pricing and terms are now “attractive for markets even without securing retro coverage” which Aon also says has stabilised.

Cedents who had walked away from the chaotic January 1, 2023 renewals with less coverage than hoped brought some pent-up demand to the mid-year table.

Aon believes that the demand-boosting process could yet extend. Growth in demand will likely run above the 5% rate at which reinsurer capital last accreted.

“Demand for property catastrophe reinsurance protection for 2023 is now expected to increase by high single digits globally or as much as 10 percent for US catastrophe as insurers look to reduce net exposure and/or secure capacity ahead of 2024,” authors claimed.

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