Property catastrophe reinsurance demand may increase at 1/1 renewals: Aon

Demand for property catastrophe reinsurance could increase at the key January 2021 renewals according to broker Aon, as the trend of insurance carriers better protecting themselves following the pandemic may continue.

Insurance and reinsurance broker Aon noted in its latest market outlook report that reinsurance capital remains accretive to insurance carrier strategies and that a trend towards increased levels of risk transfer may continue into 2021.

“Increased risk transfer over the last six months has demonstrated the value reinsurance provides to actively trade risks in the market,” the broker explained.

Adding that despite numerous headwinds, the reinsurance sector has been able to remain well-capitalised and meet increasing demands for risk transfer, even in the shadow of COVID-19.

Alongside capital levels and expertise, Aon cites, “quick adaption to virtual working environments, continued adoption of efficient technology and risk transfer platforms, and a relatively well-connected industry,” as all helping to ensure continuity for cedants over the last few months.

“These factors have preserved the ability to match capital with desired risk transfer and we expect these trends to continue for upcoming January renewals,” Aon explained.

Over the first-half of 2020, a number of global insurers have increased their property catastrophe reinsurance risk transfer, utilising this as a buffer to mitigate further impact of COVID-19 losses. At the same time, peak zone capacity renewed in a relatively orderly fashion during the spring renewals, according to the broker.

“Should these dynamics persist, slight increases in demand are expected for property catastrophe through January renewals as insurers face a heightened view of risk and volatility, and pressures from rating agencies,” Aon said.

“More broadly than catastrophe risk, industry reserve dynamics and recent rate increases also suggest potential increased demand albeit balanced with the need to meet positive risk transfer metrics for insurers who can retain the risk if they fall out of line,” the broker continued.

This all bodes well for insurance-linked securities (ILS) players that may be able to increase their participations in certain reinsurance programs, where cedants want to increase their coverage.

As carriers look to better protect themselves against volatility from severe weather and catastrophe events, the ILS market is likely to find itself an increasingly important partner for these carriers, as they look to efficient sources of capital to protect themselves.