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Client demand for risk capacity is “accelerating in all dimensions” according to Shiv Kumar, President of GC Securities, the capital markets and ILS specialist unit of reinsurance broker Guy Carpenter.

Speaking to Artemis around the 2024 Monte Carlo Rendez-Vous event, Kumar explained that the insurance-linked securities (ILS) investor-base has an opportunity to lean forward into these trends, to derive new opportunities.

“The ILS space has been very successful in addressing the need for property catastrophe risk capacity in the market over the past two decades. With increasing economic growth, inflation in property values and climate change, the demand from our clients for risk capacity is accelerating in all dimensions,” Kumar explained.

But added that, “We see some hesitation from investors in providing solutions for aggregate covers which include secondary perils and there is limited investor appetite for lower layers in the reinsurance tower,” while in addition “The market also struggles with E&S portfolios and program business.”

He also noted that, “The penetration of the ILS market beyond property catastrophe lines is being attempted but has been challenging.”

But urges the market to seize opportunities that are evident in clients needs, saying, “As more capital flows into the ILS space and the traditional reinsurance market remains robust, investors will have to lean forward in some of these areas to construct interesting and diversified portfolios. At GC Securities, we are committed to educating the market and broadening its footprint.”

Moving on to discuss challenges that ILS markets and investors might face, Kumar highlighted model-reliance and how certain views of risk can differ.

“The ILS market is very technical in that it is underpinned by third-party expert modelling,” he told us. “This is a desirable feature as it provides consistency and rigor to the market.

“However, the models are updated as new information becomes available but the updates are not implemented at the same time in the ILS and traditional market.

“This creates a potential situation where a tranche may look riskier under a new model version in the ILS space compared to what the sponsoring cedent or the traditional reinsurance market may see in a prior model version on their system.”

Kumar went on to caution that, “Investors should be careful to not price themselves out of business at year-end due to risk quantification variation in different model versions.”

Demand for risk capacity “accelerating in all dimensions”: Kumar, GC Securities was published by: www.Artemis.bm
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Even without any major catastrophe loss events over the rest of the year, Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners Ltd., is not expecting a significant shift in premium from current price levels and notes the company will strategically shift capacity between areas of the market to source the best deal opportunities for its investors.

Speaking with Artemis at the 2024 Monte Carlo Reinsurance Rendez-Vous event, Stahel explained that LGT ILS Partners, the specialist dedicated ILS investment unit of the private bank and asset manager LGT Capital Partners, sees the end of year reinsurance renewal price discussion as likely to be nuanced, but also noted that it is important not to be complacent as loss events can occur at any time.

Discussing what drives the price conversation and what factors are front-of-mind at the RVS, Stahel said, “During this period of various conferences in Fall, one of the key questions from our investor base is usually where we see reinsurance pricing for the upcoming year, now that these conferences and meetings are taking place.

“We acknowledge, of course, that the ultimate price level for capacity depends on many factors.

“Each counterparty is distinctly different; underlying portfolios, strategies, market access and loss experiences vary significantly.

“These aspects, combined with important qualitative assessments, are ultimately driving the individual price for reinsurance for a primary insurance company.”

Continuing to explain, “The surprisingly quiet hurricane season currently implies that there should be sufficient capacity available for the renewal round 2025. However, such a discussion is clearly premature as market participants are very much aware that the hurricane season will continue for several weeks and is still able to generate significant activity.

“Living in Switzerland, I recall that back in 2012, I was mounting the winter tires on my car when hurricane Sandy made landfall in New York at the end of October!

“And whilst the level of inflation has seen a significant reduction in recent months, the adjustments in insured values typically lag considerably, and we still expect to see an adjustment for inflation playing a role in the regulatory risk assessment for 2025.”

Summing up that, “As such, even absent of any significant loss event until year-end, we do not expect any significant shift in premium from current price levels.”

Moving on to discuss the various areas where the LGT ILS Partners team source their investments for fund strategies, Stahel noted that not all are equal, in price terms.

“An interesting observation circles around the price difference between the cat bond market and the market for traditional reinsurance transactions. Especially in the first half of 2024, we have witnessed an influx of capital in the cat bond segment, leading to a lower premium compared to private transactions.

“At LGT ILS, we are indifferent around the transactions structure; we like clean and well-structured cat bonds, but with our in-house rated reinsurer Lumen Re, we can transact the same deal in reinsurance format.

“This allows us to strategically shift capacity between the markets, to accommodate the area where capacity is scarcer and placed at more attractive premium levels,” commented Stahel.

While the optionality of being able to access insurance risk in various forms and structures benefits the investor-base of the LGT ILS Partners funds, Stahel also highlighted that cedents can leverage this to their own advantage as well.

“Insurers and cat bond sponsors can apply a similar strategy,” Stahel told us.

“Issuing a cat bond is a longer-termed project, and a swift response to a potentially short-termed capital influx is difficult, if not impossible.

“It may however be advisable for insurers and cat bond sponsors to complete the work and internal approval process for a bond issuance and prepare the organisation to place a bond in the market, but with the clear strategy to only do so if the market is able to absorb the deal at favorable terms,” Stahel suggested.

No significant shift in premium from current price levels expected at renewals: Stahel, LGT was published by: www.Artemis.bm
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Dean Klisura, the President and CEO of Guy Carpenter has explained that the market is well capitalised and this is accelerating, while reinsurers remain open and motivated to do business.

Speaking during a briefing held in advance of the Monte Carlo reinsurance meetings, the reinsurance broking CEO noted the market still sits in a state of equilibrium.

Klisura explained, Number one is the market has ample capacity. Reinsurers are motivated to see our clients and do business in Monte Carlo and, so, people in the market have described it as equilibrium, with very engaged clients and reinsurers heading into this weekend.

“All of our clients will be entering these renewal discussions this weekend hoping to differentiate themselves from their key peers in the marketplace, and really leverage their key strategic trading relationships with reinsurers.”

On the client side he said that cedents are “focused on portfolio management and risk mitigation across their portfolios,” while on the capital provider side “reinsurance markets are really bringing a detailed and disciplined underwriting approach to each differentiated renewal at January 1.”

Despite certain published concerns around casualty lines, Klisura said, “Many of our reinsurers are open and motivated for business at 1.1, they want to grow their portfolios.”

He highlighted ongoing headwinds, of inflation, geopolitical risks and macroeconomic uncertainty, while catastrophe losses and climate change are also current concerns that will play into the upcoming reinsurance renewal discussions.

Then going on to say, “But there are also tailwinds that are benefiting our clients in the marketplace and our trading partners.

“The reinsurance market continues to be very, very strong and well capitalised. Capital in the marketplace is strong and accelerating, and for the first time in perhaps three years, we’re seeing the advent of new startups and new capital really being discussed to enter the marketplace in 2025.”

With reinsurers experiencing strong returns and insurance-linked securities (ILS) markets benefiting from this as well, Klisura does not anticipate discipline falling.

“Reinsurers want to hold their positions, want to be disciplined, and they want to write more business as we head into 2025. But we do expect continued and sustained underwriting rigor in the marketplace,” he explained.

But also hinted at the potentially tough negotiations we could see at the year-end renewals this year.

“As you heard from many CEOs this week, reinsurers want to hold their gains, really keep structures, attachment points, terms and conditions where they are, which are producing very, very healthy, ROIs for those businesses.

“So, it’ll be a challenging conference for our clients to try to make some headway in those discussions,” Klisura said.

Also read: New cat bond sponsor interest to continue in 2025, alternative capital to keep flowing: Rousseau, Guy Carpenter.

Reinsurers open and motivated. Capital strong and accelerating: Klisura, Guy Carpenter was published by: www.Artemis.bm
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Marcel Grandi, Head of ILS Sourcing at Zurich-headquartered insurance-linked securities (ILS), catastrophe bond and reinsurance investment manager Twelve Capital, believes the current reinsurance market environment and its pricing may persist longer this time.

In a recent interview, around the 2024 Monte Carlo Reinsurance Rendez-vous event, Marcel Grandi of Twelve Capital told Artemis that he has more confidence in the harder cycle being sustained.

Explaining some of the recent backdrop to the market environment, Grandi said, “ILS markets benefitted from a record high rate environment over the last two years for both collateralized re as well as cat bonds.

“The active wind season forecasts which motivated an increase in buying demand dampened pressure on rates during the year. In fact, cat bonds and in particular Insurance linked Warranties experienced a more dynamic upward price development in the first half of the year and in particular shortly ahead of the start of hurricane season also offering opportunistic opportunities.”

Grandi also discussed the loss environment, noting that after the reset in reinsurance pricing and terms that occurred through the last few years of renewals, the ILS sector has been better able to manage its exposure to frequency and severity.

Grandi said, “In the absence of large sized catastrophe events so far, the trend for elevated insured nat cat losses continued in the first half of 2024. Insured losses from severe thunderstorms in the US were again the main source contributing to over USD 40bn of the total insured losses of more than USD 60bn worldwide (the usually more loss intensive second half of the year yet outstanding).

“However, the impact to reinsurers was limited and the retro as well as ILS markets were not affected.”

Going on to say, “The structural enhancements achieved in the last years’ renewals as elevated general retentions, limitations of the scope of coverage, clear definitions of the covered natural perils, high event deductibles (in the case of aggregate structures) are helping the ILS markets to manage the apparent trend of an increased frequency and severity of secondary perils as thunderstorms, wildfires or floods.”

Grandi went on to highlight the issue of climate change, saying this will be one of the ongoing challenges for ILS managers.

He explained, “The management of the effects of climate change in ILS structures remains a core priority. Considering the loss trend in secondary perils which continued in 2024 the question of the insurability of certain secondary perils remains.

“This includes a closer look into the modelling quality for certain secondary perils as well as possible structural and contractual adjustments to mitigate unwanted secondary peril exposure.”

While that suggests continued work is needed to maintain the appropriate level of risk-sharing, between primary, reinsurance and retrocession sides of capital provision, Grandi believes gains made through adjustments tocontract terms can prove more sticky this time.

At Twelve Capital, the opinion is that these conditions for deploying capital to reinsurance opportunities can be sustained for longer.

“We are anticipating the stable and healthy reinsurance cycle to continue possibly for longer than previous cycles where peaks lasted for around two years before rate erosion started,” Grandi told us.

Explaining that, “With around USD 105bn to 110 bn of alternative capital outstanding the growth of alternative capacity has been limited recently with a healthy match of supply and demand.

“The outlook for ILS investors remains positive.”

Read all of our interviews with ILS market and reinsurance sector professionals here.

Stable, healthy reinsurance may persist longer than previous cycles: Twelve Capital’s Grandi was published by: www.Artemis.bm
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In order to avoid disappointing investors and guarantee continued access to capital, the reinsurance and insurance-linked securities (ILS) industry needs to escape the market-cycle mindset and deal with the biggest threat it faces, which is inertia, according to Chris McKeown of Vantage Risk.

McKeown is the Chief Executive for Reinsurance, Partnership Capital, and Innovation at growth company Vantage Risk. He spoke with us around the 2024 Monte Carlo Rendez-Vous event, to share his views on current market conditions and the importance of staying disciplined in reinsurance.

His role encompasses Specialty and Property Reinsurance and the AdVantage offering, which is a collateralized re/insurer focused on partnership capital. So McKeown is well-placed to speak to the evolving industry dynamic as the year-end discussions begin.

With returns currently elevated for both reinsurers and ILS strategies, McKeown discussed why that is and his hope that the industry doesn’t become complacent, or let standards slip, to risk sliding back into old habits of allowing risk-adjusted returns in the market to decline too far.

McKeown told Artemis, “A good year doesn’t prove the thesis that we’re now in a sustainable marketplace and guarantee continued access to capital. Letting our long-term focus fall to the wayside will be our undoing.

“With economic inflation, social inflation across verdicts and settlements, putting more value in front of risks, climate… Now is not the time to fall into a habitual disposition.

“The market needs to maintain the level of risk-adjusted returns in order to grow. And we all should want the market to grow.”

Adding that, “There is still work to be done in many geographies, and for many perils, but the hard work achieved to recognise the trends in the major and secondary perils in the US will hopefully persist into 2025; pulling back to less than stellar terms now would be folly.

“For now, the industry has achieved a reasonable balance between supply and demand. However, this is a delicate balance, given evolving risks and structural constraints.”

Asked what he foresees as the biggest challenge for reinsurance and ILS markets, McKeown suggested it is falling back to old habits and failing to move forwards and innovate.

“Inertia is the biggest threat to our industry today, Steve. We need to escape the gravitational pull of the conventional, market-cycle mindset,” he explained.

“That said, we’re controlling the narrative better as a market.

“The property cat marketplace required a correction of radical measure in 2023 due to years of ignoring trends in inflation, demographics, values, and retrospective pricing.

“We have, as risk capital providers, successfully re-set the market to a more sustainably profitable level.”

He went on to highlight how this re-set in reinsurance pricing and terms has enabled the industry to achieve the stellar returns of the last year or more.

While, so far in 2024, largely stable pricing has been experienced by reinsurance and ILS capital providers and the catastrophe bond market has set new records.

But McKeown questions some of the reinsurance industry’s long-held beliefs, around the inevitability of the pendulum swinging back to a softening market environment.

“There’s an archaic belief that the large swings in market cycles are inevitable and we’re powerless to do anything,” he explained.

Continuing to say that, “If so, we are bound to under-impress investors and not achieve consistent access to capital.”

McKeown further said that, as an industry, “We must continuously challenge our ingrained thinking and prove that this is a viable market.

“The threat is that our hard-earned confidence from 2023 turns into hubris, or worse inaction, and we’re blinded to the apple cart tipping in slow motion.”

McKeown then discussed the need for more capital to support the industry and we asked him what could tip the cart?

He said, “I think it is akin to market psychology.

“Firstly, from a structural standpoint, we’d do well to continue to find ways of bringing more, and more efficient capital, into our industry to improve our relevance in a rapidly evolving risk landscape, whether due to changing exposures or climatology.

“That leads to my second point, let’s acknowledge that changing exposures are a bigger driver of loss today than climate, currently. As a society, we’re continuing to stack more value in the way of storms, earthquakes, and fires than ever before.”

Going on to explain, “The total value of the U.S. housing market doubled in the last decade and is now worth $52 trillion. We’re building new housing units in risky places, ~580,000 in Florida and ~370,000 in California from 2020 to 2023. All new builds in Florida are hurricane exposed and new builds in California are increasingly wildfire exposed. Once we control for increasing housing values, construction costs and population (which is a data issue – collecting better, more timely information), climate is the next biggest source of uncertainty for natural catastrophe losses. We know a warmer climate introduces volatility and the prospect of increased severity and frequency looms large.”

McKeown then acknowledged that inputs from outside the industry are also influencing the market, especially in terms of how capital flows occur, again reiterating that the market needs to deliver on capital provider expectations.

“We’re in a floating rate business. The industry lives and breathes the general economic cycle in returns on assets. And we’re also an essential good, so, historically anyway, largely recession and depression proof. No matter the economy, people and businesses need to mitigate risks,” he told us.

“It’s prudent for us to be aware of broad conditions but let’s focus on risk adjusted returns that keep the industry reasonably profitable. We must keep an eagle-eye on rate adequacy.

“That said, being on our toes keeps us agile and driven to forge a healthy, resilient market. Constraints are often the genesis for creativity.”

Concluding this part of our interview by saying, “Collectively, we must continue innovating to attract sufficient capital and meet tomorrow’s risks.”

Read all of our interviews with ILS market and reinsurance sector professionals here.

Inertia the biggest threat. We must escape the market-cycle mindset: McKeown, Vantage was published by: www.Artemis.bm
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The outstanding market for collateralized reinsurance sidecar structures has reached a new record high of $10 billion in 2024, which represents roughly 40% growth on the prior year, Aon Securities estimates.

Aon Securities, the insurance-linked securities (ILS) and investment banking arm of the global insurance and reinsurance broker, notes that the new issue reinsurance sidecar market has continued its “re-emergence” with investors looking to support property portfolios, as well as newer structures backing casualty risks.

These quota share structures are seen as an aligned way to support a reinsurer, sharing in its underwriting profits and losses, without any of the exposure to business and corporate risk that might come with an equity or private equity investment.

Hence, in a lot of cases, the backers of sidecars are private equity like investors, although institutional allocators such as pensions, endowments and family offices are equally as prevalent in the sidecar market, especially in fund structures that allocate to multiple private sidecar quota share arrangements.

Previously, Aon had noted that it estimated over $1 billion of new capital has entered this proportional collateralized reinsurance sidecar market in the last year.

Now, the Aon Securities unit has provided a clearer view of the size of the sidecar marketplace, putting it at around the $10 billion level, in terms of sidecar capital outstanding, a new record high as of the middle of 2024.

It represents growth in sidecar risk capital of around 40% over the last year, which outpaces the catastrophe bond market.

Reinsurance sidecars had reached $8.4 billion in capital outstanding right back in 2015, which was the previous high for this part of the collateralized and ILS market.

But sidecar investors were badly affected by the catastrophe losses experienced through 2017 to 2019 and the looser terms around sidecar structures meant the trapping of collateral was also particularly impactful to them.

Sidecars tended to come with buffer loss table clauses that favoured the sponsors and made it very easy for capital and collateral to get trapped, even where losses were deemed relatively unlikely.

The terms and conditions around collateralized reinsurance sidecars were updated in the years following, but it has taken time for investors to get comfortable with the new terms, and now we are beginning to see the effects of this hard work from structuring and legal teams.

Aon Securities also notes that, “Growth of the sidecar market was facilitated by the return of past ILS investors who waited out the soft market cycle and new investors attracted by heightened returns.”

The company further explained, “Higher potential returns in property sidecars have been driven by historically elevated premium rates, more remote attachment levels for underlying treaties, and narrowed coverage definitions.

“Importantly, the property sidecar cycle is being driven not only by reinsurance portfolios but also insurance portfolios. Insurers are looking to sidecars as a source of proportional reinsurance to address the increased earnings volatility from higher excess of loss retentions.”

That is an important distinction.

Many of the reinsurance sidecar investments that resulted in challenging loss and trapped capital situations were retrocessional quota share structures.

The reinsurance quota shares, for primary insurers, tend to have been structured in a way that is more aligned between the protection buyer and capital provider, which is understandable given these are often seen as growth capital by their sponsors, rather than a risk transfer vehicle.

Aon Securities also highlighted the growth of casualty sidecar transactions, saying, “Casualty sidecars have also developed as the combination of improved casualty insurance pricing, higher interest rates, and substantial risk spreads for private credit instruments make these structures possible.

“Investors are seeking structures which provide long-dated investment float to manage within their asset management platforms. This dynamic has allowed (re)insurers to negotiate attractive cession terms to supplement their traditional coverage.”

It’s worth noting that other data sources are not quite as bullish on the size of the sidecar market. While recognising growth and a resurgence, the latest data from AM Best and Guy Carpenter put the reinsurance sidecar market at between $6 billion and $8 billion, although recognising it could be nearer the upper-end of that range.

Find details of numerous reinsurance sidecar investments and transactions in our directory of collateralized reinsurance sidecars transactions.

Reinsurance sidecar market estimated at record $10bn in 2024: Aon Securities was published by: www.Artemis.bm
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According to reinsurance broker Guy Carpenter’s Global Specialties division, there is an expectation more non-marine retrocessional capital and capacity comes to market through the end of year, which could impact supply-demand dynamics and cost of coverage.

Commenting on property retrocession market conditions today around the Monte Carlo RVS, Guy Carpenter said that Q2 2024 saw “a significant increase in demand for peak peril retrocession (retro) coverage and cat on direct and facultative (D&F) limit.”

While, “Demand for retro XoL coverage increased following the April 1 renewals, driven by appetite from buyers at January 1 for peak peril retro top- up limit and new buyers looking to re-enter the market.”

The market remains narrow for lower-level retro coverage, “but brokers are keen to get more reinsurers back into that space,” Guy Carpenter’s team said.

Commenting on the quota share market, GC said results have been strong.

“Results in quota share have been strong, so more markets are willing to deploy capacity on a quota share basis. However, in the retro space, there is still more demand than supply for quota share capacity,” the reinsurance broker explained.

The rest of the hurricane season will influence the end of year renewals, but already there is an expectation of more capital being available to support retrocession deals at the January 2025 renewals.

“There is currently sufficient capital in the market to meet demand, but more is likely to be deployed, which will impact overall cost and supply dynamics,” Guy Carpenter said.

Adding, “Attachment points are expected to be as prominent in renewal discussions as price.”

“Clients buying a material amount of capacity should be assessing as many pools of capital as they can – traditional reinsurers, ILS reinsurers for occurrence and aggregate, as well as quota share and cat bonds or looking at index products,” explained John Fletcher, CEO, Bermuda.

“As with previous renewals, Guy Carpenter advocates accessing multiple pools of risk capital. As we approach the renewals, we anticipate that clients will have a greater choice of who they want to trade with,” added Richard Morgan, Head of Non-Marine Specialties.

More retro capital expected, will impact cost & supply-demand dynamic: GC was published by: www.Artemis.bm
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Speaking this morning at the 2024 Monte Carlo Rendez-Vous event, executives from Fitch Ratings said that with further improvements in fundamentals less likely now, moderate and gradual softening is now expected for property catastrophe rates and pricing.

Manuel Arrivé, CFA, Head of EMEA Reinsurance Ratings at Fitch, explained that the reinsurance market has reached the peak of the current hard market cycle, absent some kind of disruptive loss event occurring, or other influencing factors.

He said that, “The sector is currently in a very good shape, with very strong capitalization, very strong financial performance by historical standards, and we expect, we expect both balance sheet and profitability to remain resilient in 2025 but further improvements in fundamentals from this point are less likely.

“We believe the cycle has most likely passed its peak, but the market condition should remain broadly favorable and supportive of strong returns.”

Going on to say, “On the positive side, we expect a disciplined market with rate adequacy and strict terms and conditions holding firm, despite increasing competitive pressures.”

Increased demand is also expected, while capital supply is likely to remain largely driven by alternative capital sources, so significant increases in reinsurance sector capital are not anticipated.

Arrive said, “Capital has been growing faster than demand, closing the gap in property cat for for example, and this has a stabilising effect on prices.”

He went on to say, “On the negative side, the market is moderately softening, with risk adjusted prices declining from multi-year highs due to high competition, mitigated by underwriting discipline that we expect to be maintained.”

Adding, “Looking forward in property cat, our base case is for moderate and gradual softening of prices, but rates should remain adequate and importantly, the types of terms and conditions that were agreed in 2023 should hold.

“Of course, reinsurers would like rates to stay higher for longer, but it looks like that they’re more open to negotiation on prices rather than structures, because at the moment, structures is more meaningful for profitability.

“We think the favorable market condition are not going to end abruptly, even if loss experience remain benign for the rest of 2024”

Highlighting that, with this backdrop, reinsurance returns are expected to remain very attractive in 2025, Arrive said, “We expect market conditions to remain supportive of strong risk adjusted returns in 2025 in this context.

“We forecast flat to modestly declining margins in 2025 but we are still at very attractive levels of combined ratios around 90% and if you add a stable contribution from investment income, that would translate in a return-on-equity of around 20% for the industry.”

Moderate and gradual softening expected in property cat reinsurance: Fitch was published by: www.Artemis.bm
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A poll undertaken just in advance of the 2024 Monte Carlo Rendez-Vous event by our sister publication Reinsurance News has found that market participants will be especially focused on sustaining prices in their discussions with clients at the event.

Reinsurance News polled its 130,000+ strong LinkedIn following and asked what the focus of their conversations at the RVS event will be this year.

The largest share, 38% of respondents to the poll, said that sustaining price levels will be the main focus for their early discussions that tend to set the tone for the end of year reinsurance renewal season.

Perhaps unsurprisingly, the next most popular option was achieving stability in attachment points and terms and conditions, which means those all-important contract features are going to be widely discussed in the Monte Carlo discussions this year.

Depending on who we talk to, our contacts all agree these are the two most important topics of conversation, but there are some that feel the attachments and terms are perhaps even more important than price.

In fact, at some of the reinsurance broker briefings held in advance of this year’s RVS, these contract features were highlighted as what might prove more sticky for the January 2025 renewal season and beyond.

The survey findings are aligned with those of rating agency Moody’s recent annual survey of global property & casualty reinsurance buyers, as most said they anticipate prices remaining stable or to even increase slightly in 2025.

Another popular answer in the Reinsurance News poll was around the continued growth opportunities that are being seen in reinsurance.

24% answered that responding to rising demand will be their main focus at the RVS event, while another 14% said broadening their portfolios in response to opportunities would be their goal.

Brokers have been vocal in pushing for contract term and price improvements for clients, while some such as Aon are hoping reinsurers will be more accommodating when it comes to taking back some of the frequency and sideways risk their clients have been absorbing over the last couple of years of the hard market.

Aon has also highlighted an expectation of the most competitive areas of the market potentially being higher-layers of property catastrophe risk, where the catastrophe bond market and many insurance-linked securities (ILS) managers are most prolific in deploying their capacity.

While market sources expect there will be some give and take on the two top answers to the Reinsurance News poll, price and coverage terms, some suggest it could be a case of a trade-off between the two this year at the renewals.

Whenever this happens we can expect some challenging and perhaps protracted negotiations as the year progresses, as well as a potentially late renewal completion as cedents look to secure the best solutions for their reinsurance for calendar year 2025.

Reinsurance market focused on price sustainability at the RVS in Monte Carlo: Poll was published by: www.Artemis.bm
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Speaking during a briefing in advance of the 2024 Monte Carlo Rendez-Vous event today, executives from Aon’s Reinsurance Solutions highlighted their expectation that the higher layers of property catastrophe programs will be competitive at the renewals, with softening of rates expected.

Aon’s senior reinsurance executives reiterated the messaging we reported earlier, that they are looking for reinsurers to provide their clients more support with frequency and sideways type covers at the end of year renewals for January 1st 2025.

Andy Marcel, CEO of Aon’s Reinsurance Solutions highlighted the well-capitalised status of the market, with catastrophe bonds a key component in the tail and higher layers of property catastrophe programs.

“The returns in the reinsurance space have been very attractive and at record levels, and so people are looking to expand their position for their key clients in key market places,” Marcel explained.

Adding, “Given that we saw competition in the tail end of cat programs and the need for clients to gain more sideways protection, to take some more volatility, we expect it to be a fairly competitive renewal season, particularly in the tail end of cat programs, which is further fuelled by the robust nature of the cat bond market.”

Tracy Hatlestad, Head of Property Reinsurance, concurred, saying, “We definitely will see more competition in the tail.”

Hatlestad continued to explain why Aon believes this can be the case at the upcoming renewals, “I think the question about, can the industry handle a large loss? Obviously, you know what’s defined as large is different around the world, and we have a bit of hurricane season left to go. But even in Atlantic hurricane peril risk, there’s a differentiation between what a large loss is and what that would be, as far as a ceded perspective through the industry, given the fact that the FHCF in Florida provides so much coverage for kind of the middle stack of what could be a large event.”

She added that, “It’s a robust market, it’s a well rated market at the moment, and the industry could handle a large loss at this point, for sure.”

Concluding on renewal rates for property cat, “Current expectations, we expect rates to soften. Our maths suggest that’s the case. Historical experience suggests that’s the case, and obviously, reinsurer results of the last 18 months suggests that that’s possible.”

Aon’s Reinsurance Solutions team has set out an agenda to get the best for its clients at the renewal, in terms of enabling them to better protect themselves against some of the volatility they have experienced since the raising of attachments and the reduction in availability of aggregate coverage.

Which should make for an interesting, perhaps challenging and possibly late negotiated renewal season, which can have implications for the catastrophe bond market and insurance-linked securities (ILS) markets, as discussions on price and terms could come down to the wire.

The cat bond market has an opportunity here though, in being able to provide indications to broker-dealers early as to what the market appetite may be to take on more risk in aggregate form, as well as on their price expectations for those key upper layers, where cat bonds are increasingly providing robust, multi-year tail risk solutions.

Also read: Aon: Reinsurance capital should run towards risk, help on frequency / earnings protection.

Expect more competition in the tail, property cat rates to soften: Aon execs was published by: www.Artemis.bm
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