Reinsurance renewals at 1/4: same themes, but ‘less severe’ than 1/1

Primary insurers throughout Asia Pacific and beyond fought off the extremes of the “turbulent” January renewals and secured a more orderly 1/4 renewal outcome, albeit with notable adjustments to price and terms, analysts at  Aon have claimed.

APAC cedents will pay “meaningfully higher prices and with adjusted retentions and tighter terms and conditions.” Aon analysts said of the bottom line. But the jolt is considered “less severe” than for the US and Europe at 1/1 for a region which “has historically been more insulated from the global reinsurance cycle.”

Market imbalance “showed signs of easing” at the 1/4, but left “demand and supply in a delicate balance,” analysts wrote.

Demand was deemed “stable,” in contrast to the surge anticipated for 1/1, with relatively low levels of inflation throughout APAC keeping the lid on cedent needs.

Capacity in property catastrophe proved “adequate” to the job, albeit at a price. Some reinsurers were said to have been egged on by favourable FX rates.

Banking sector difficulties do not seem to be having a direct impact on underwriting appetite or alt-cap investor interest, but any kick-on effects to the macro picture will certainly be felt, authors indicated.

Expect recent renewal redux at the mid-year deadlines, Aon analysts claimed.

“Although challenging, we anticipate a manageable mid-year renewal, with capacity available at a price,” analysts wrote. “All things being constant, the market should continue to stabilize, although inflation and 2023 catastrophe loss activity will be key.”

Australia and New Zealand could come into focus after “unusually large” cat events since the last round.

Adequate capacity at 1/4 does not necessarily signify growing capacity, analysts warned.

“New capital formation is currently limited, reflecting significant uncertainties in what has become a very challenging risk environment,” authors noted.

Alternative capital, in turn, has shown signs of life in late Q1 2023 after a vacation Q4 2022 motivated by Hurricane Ian.

Transaction sizes have increased “markedly” since H2 2022, with pricing still “elevated,” but still off its recent peak.

Collateralised reinsurance remains “somewhat constrained,” and the sidecar market “has not grown substantially,” Aon analysts admitted.

By the market:

Japan brought “flat” levels of demand on account of low inflation and prior year moves to increase the limit. Improved T&C may have eased reinsurer reticence to secure capacity. Earthquake capacity proved “more than adequate,” while windstorm and flood capacity appeared “more constrained.” Price gains may appear muted after cat-driven outpace gains in prior years.

South Korean cedents suffered a “slow and somewhat frustrating” renewal process. Capacity for proportional treaty was “tight” on a mix of prior exits from the market, reduced appetite post-1/1 versus the attraction of improved T&C and reinsurers demand more co-participation. Capacity for excess of loss was called “adequate, but at a sharply increased price.” Cat experience has hardened reinsurers.

Renewals in India were dominated by the regulatory-driven issue of minimum risk rates, as well as the continued re-pricing of nat cat seen at 1/1. Property cat pricing increased at a double digit pace, ahead of Japan, what authors consider “a significant uplift for the Indian market by historical standards.” Casualty and agriculture were comparatively stable.

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