Capital flows help reinsurance to ‘equilibrium’, but demand lingers: Aon

Capital flows, most visible into cat bonds, are starting to bring some measure of equilibrium to reinsurance markets, although some spill-over demand from treaty renewal remains unsatisfied to drive ILS and facultative reinsurance in the second half of the year, top officials at global re/insurance broker  Aon have said of market conditions.

“On the overall capital provision of the reinsurance market, you are starting to see equilibrium,” CEO Greg Case (pictured) told his company’s second quarter earnings call. “We are getting to equilibrium of pricing in property cat.”

“The big players are getting more active, especially on the property cat side,” he said, “and you’re seeing investors looking to support.”

But investors know their appetites and limits. No one is taking major new big bets in company creation, but “more in support of existing players.”

In ILS, where Aon brags of having handled a market-beating $5 billion in cat bond issuance in the first half, Aon sees existing investors upping their allocations in the segment and some investors returning to the space after a break.

But Aon's talk of equilibrium doesn’t mean demand has been satiated in the renewal season year-to-date. Cedents are walking away with shortfalls in their programs which should spill over into a strong ILS pipeline and heavy facultative reinsurance deal flow in the second half, officials claimed.

“We had a very strong first half in fac and our expectation is that should continue” as primary insurers have less low level coverage or less on secondary perils, Aon president Eric Andersen said. Facultative deals on individual risks may be the top pick to plug gaps, he believes.

Facultative deals from large corporate clients and captives further that trend, Andersen added.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.