Reinsurers cannot run from risk: Aon report

The reinsurance industry has untapped growth potential and must play a more active role in helping insurers to manage frequency losses and earnings volatility. That is according to Aon’s “Ultimate Guide to the Reinsurance Renewal” September 2024 report, which contrasts the robust financial results of the reinsurance industry against a backdrop of insurer losses and increasing complexity of risk. 

The report highlights that the key ratio of global insurance premium to gross domestic product has remained at approximately 1.8 percent since 2010, despite exposure growth and unmet client need.

Despite natural catastrophe re/insurance payouts reaching $58 billion during the first half of 2024—well above the first half decadal average of $47 billion—reinsurers achieved an average common return on equity of 17.6 percent during the same period. 

Some of the industry’s largest reinsurers reported a return on equity (ROE) of more than 25 percent—well above that of most primary insurers and their own cost of capital—which could lead to higher growth, according to Aon’s performance analysis of 100 global re/insurers.

However, higher retentions in insurers’ catastrophe programmes reduced capacity for frequency covers and resulted in an unequal distribution of underwriting profit across the insurance value chain. 

“Renewals in 2024 have seen reinsurance pricing gradually decrease.”

The report reveals that global reinsurer capital reached a record high of $695 billion at June 30, 2024—an increase of $25 billion compared to year-end 2023. This increase was principally driven by retained earnings, new inflows to the catastrophe bond market, and recovering asset value. A survey group of re/insurers reported average annualised ordinary investment yields of 3.8 percent for the first half of 2024, up from 3.1 percent during the prior year period.  

Renewals in 2024 have seen reinsurance pricing gradually decrease, partly due to an increase in alternative capital to $110 billion, and with rate reductions granted by reinsurers for the best-performing risks. Aon forecasts an increase in pricing competition in 2025, and that insurers will begin to see greater flexibility around capacity provision and coverages. 

Rupert Moore, UK chief executive officer of Reinsurance Solutions for Aon, said: “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. 

“Aon is here to bring clarity and confidence around risk; shaping better decisions and highlighting profitable growth opportunities for all parties.”

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