Growth opportunities and stability in stark contrast to last renewal

With areas of client growth in their sights and relative market stability ahead of 1/1, the co-presidents of Aon’s US Reinsurance Solutions business, Stephen Hofmann and Kevin Traetow, are clear that market dynamics ahead of this renewal are in stark contrast to last year.

Comparing 1/1 2024 to last year’s renewal, Traetow told Intelligent Insurer: “What a difference a year makes.”

At Monte Carlo in 2022, Hofmann said there was a path to deliver to clients the capacity they needed, although at a higher price and restricted terms.

However, as the industry headed to APCIA last year, the effects of Hurricane Ian’s landfall in late September started to impact the available capital in the reinsurance market, with many reinsurers reducing their commitment or some no longer writing the coverage, said Hofmann. This led to the initial optimism being replaced with concerns over capacity shortages.

In spite of the challenges, Hofmann and Traetow were stoical, saying that Aon got through that cycle with 1/1 pricing coming in at a level that enabled their clients to purchase the capacity they needed.

“Now, going into the 1/1 2024 renewal there is a market appetite to grow, as many reinsurers have either raised or allocated additional capital to the property cat market,” says Hofmann.

“There will be a differentiation for certain lines of business, and also in terms of what reinsurers view as ‘premier’ clients. Reinsurers have a high appetite in these areas, so the renewals should be competitive, and we’re not as concerned about being able to fill out the order compared to last year.”

Traetow continues: “Another difference is that reinsurers have all advised they’re ready to quote; they’re ready to authorise; and they’re ready to get going, which is in stark contrast to last 1/1 where the market didn’t open up until the middle of December for the most part. What a difference a year makes.

“All the conversations last year were around property, and this year certainly we’re still talking about property, but it’s part of an overall discussion with clients on their entire portfolio strategy and their risk/volatility management initiatives.”

Given some of the capacity constraints earlier this year in the traditional reinsurance market, Traetow and Hofmann saw an increased interest in alternative sources of capital. In 2023 there has been a robust insurance-linked securities (ILS) market, with a record issuance of catastrophe bonds.

“There’s a forecast of cat bonds being robust into 2024, as well. So we’re seeing a broad range of increased capacity available for our clients,” Traetow says.

Hofmann adds: “What happened last year has caused clients to want to look at those products and the stability they can bring.”

High inflation remains a key topic as clients continue to see exposure increases and increased loss costs in their business year on year.

But, Hofmann says, concerns have been “tempered” by clients’ efforts to capture the appropriate insurance value in their policies throughout their portfolios, and also to match the pace of increased loss costs through their rate actions.

“Clients are addressing the inflation in their policies and their portfolios, and reinsurers have acknowledged the positive impact this is having within our clients’ portfolios,” he adds.

Meanwhile, Traetow is clear that while some of the major concerns have dissipated, Aon’s clients still face very challenging results this year, primarily driven from loss activity earlier in the year.

“Many of our clients had to take significant increases in retentions during 2023, and as a result are seeing some difficult performance on the primary side over the first 10 months.

“We remain in continuous discussions with reinsurers and alternative capital providers about solutions, for instance in terms of aggregate or sideways covers. But clients are also addressing those issues via underwriting actions and concentration/exposure management.”

Client growth areas

Given the disruption in personal lines, there are several opportunities throughout the US to grow, with coastal states and the Midwest representing potential key areas. Throughout the year, California and Florida have been in sharp focus, but recently the Midwest has also come under scrutiny due to ongoing profitability issues

“You’ve had some insurance companies reduce their exposures or completely pull out of certain markets, which has created opportunities for other insurers to grow,” Hofmann says.

He adds that several clients are examining capital options such as reinsurance to help them address the growth opportunities that are currently in the market. Aon is helping them to assess the most efficient forms of capital, including quota share reinsurance, legacy reserve transactions, debt or equity.

“Many of our clients have identified profitable growth opportunities in the current market that they would like to capture, and are evaluating reinsurance as a way to diversify their capital.

“We’re having a lot of discussions with clients on how they can access additional capital and capture these growth opportunities,” he says.

To augment its broader delivery of client value, this year Aon announced its Risk Capital structure to make the most of opportunities created by shifts in the economy where re/insurance capital could be deployed. Areas of focus include construction, energy, renewables and managing climate risk.

Traetow says: “The benefit of our Risk Capital structure is that it unites solutions—including our insights, resources, data, and analytics—from across our reinsurance and commercial risk businesses to ultimately enable all our clients to navigate volatility, build resilience, and make better decisions.”

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