AAIS Pulse Takeaways and Replay: Exploring Fundamental Shifts in the Reinsurance Market

AAIS (American Association of Insurance Services) shares their insights for the insurance community through a variety of educational formats including AAIS Pulse – a virtual event series where Aon’s Reinsurance CEO Andy Marcell was featured as a panelist along with Frank Nutter, President of RAA (Reinsurance Association of America) and hosted by Ed Kelly, President and CEO of AAIS.

Andy shared his thoughts on potential casualty exposures from the recent U.S. bank failures, what caused the recent significant shifts in the reinsurance market following the tough January 1 and more manageable April 1 renewals, and how insurers can prepare themselves for the coming year.

Challenges for the renewal year ahead

The 1/1 renewal season signaled a fundamental shift for reinsurance buyers. Macroeconomic issues such as political instability, difficult economic conditions, recent U.S. bank failures causing more uncertainty and the global impact of climate change have exacerbated what was already a tight market for re/insurers.?

Many industry leaders have called the January renewal the ‘toughest renewal in a generation’, a sentiment that has certainly been reflected in new investors’ lack of faith around liquidity concerns and losing equity. In his discussion, Andy Marcell highlighted the need for insurers to address this particularly around rate adequacy and a better view of secondary perils. Globally, insurers are likely to start to pivot managing their capital in a way that addresses the higher risk they’re retaining, something that reinsurers must take into account moving forward.

While the APAC market 4/1 renewal was more orderly compared to how the market performed at 1/1, there is still significant pressure on available capacity, with the market not expecting to meaningfully soften over the next 12 months.

Capital optimization differs across insurer segments

Though capital optimization has always been top of mind for the industry, efficient capital management will be more important than ever in order to address these challenges.?

Global insurers should look at their balance sheets to see if legacy solutions can help free up capital, and mitigate volatility in accordance with their book values. Along with globals, national insurers are sophisticated buyers as they have the capital and balance sheet strength to support higher retentions.

While regional and mutual insurers have less ability to raise capital, they still have a strong need for it. The ‘cost of business’ will be a point of focus for many mutuals moving forward, particularly in helping these businesses become more capital efficient. Examining retro, captives and pricing dynamics can help these businesses operate more effectively. It’s important for leaders to ask themselves: are we running the business we want and growing in right areas? And if not, how do we access and allocate capital or move it around and especially measure it?

Decision-making around capital will surely be a major challenge for business leaders in the following months. At the same time, these conditions will change; if there are no major loss events in 2023, then capital will begin to flow again, which will ease the pressure placed on insurers today.

What opportunities are next for insurers?

Though the APAC reinsurance market was more stable at 4/1 renewals compared to 1/1, clients are still experiencing frustration and lack of clarity when it comes to how reinsurers are handling renewals. Aon is having conversations with every hedge fund, pension fund, etc. and we’re making markets for these funds to participate. We’re matching risk with capital, but the industry must make better returns for these investors. There are also many opportunities on the casualty side with single-digit rate increases, but the real unknown is with D&O (Directors & Officers) line of business due to uncertainties of the recent U.S. bank collapses. Now more than ever, it’s important for insurers to keep a close eye on reserve development, as well as demand for casualty products given the economic slowdown.?

There is still a challenging path facing the re/insurance market in the coming year; however, this means that it’s more important than ever to have the right capital strategy and technology based on data insights and expertise on your side.?

For more on the AAIS Pulse conversation, watch the replay and read their summary blog .

Read Aon’s latest Reinsurance Market Dynamics report and thought leadership insights .