Reinsurance buyers at renewals see property cat capacity constraints

Reinsurance buyers at June 1 and July 1 reinsurance renewals faced capacity constraints, particularly for Florida catastrophe exposure, and reinsurers balked entirely at some specific covers, according to a report Thursday from Aon PLC.

Meanwhile, industry capital was lower at the end of first-quarter 2022, compared with the end of 2021.

Property natural catastrophe capacity contracted “materially, and some reinsurers would not write certain risks ... at any price,” such as the lower layers of reinsurance cover for Florida catastrophe risk.

Total reinsurer capital was $645 billion on March 31, down $30 billion, or 4.44% compared with the end of 2021. The decline was tied largely to unrealized losses on bonds due to rising interest rates, Aon said. Alternative capital, part of this total, rose $1 billion, or 1%, to $97 billion.

Catastrophe bond markets are seeing increased activity with the cutbacks in reinsurers' capacity, Aon said. “Demand for catastrophe bonds currently outpaces supply, as insurers and reinsurers increasingly turn to alternative capital markets to supplement traditional reinsurance …  in a challenging environment.”

First-quarter 2022 gross written premium rose by an average of 15% across 19 American Reinsurance Association reinsurers that reported results. The average net combined ratio across a smaller subset of 17 reinsurers for which data was available was 92.9%, the report said.

Future property reinsurance renewals may encounter “a true ‘hard’ market, where overall demand is not readily satisfied,” Aon said, pointing to inflation, economic and financial markets uncertainty, and climate change as key headwinds.