Aon launches Reinsurance Market Outlook - September 2020 report

16 September 2020 — press.release
Aon launched the September edition of "Reinsurance Market Outlook", providing a comprehensive assessment of key market dynamics of the recent renewals period. Metrics such as global reinsurer capital, alternative capital, and catastrophe losses offer insights on the potential direction of the global re/insurance industry and future renewals, the report says.

Even as markets continue to evolve in the wake of COVID-19, reinsurance remains an accretive form of capital for insurers in managing volatility. Increased risk transfer over the last six months has demonstrated the value reinsurance provides to actively trade risks in the market.

Headwinds for the industry include evolution of COVID-19 related losses and coverage as well as trends that were emerging prior to the pandemic including reinsurer combined ratio results, social inflation, catastrophe loss experience driven by more secondary perils, and low interest rates.

Despite these challenges, the market has also seen counterbalancing impacts that affect financials, but also the markets ability to operate. These include rebounding global reinsurance capital through Q2, capital raises of circa USD 8 billion supporting traditional capital, quick adaption to virtual working environments, continued adoption of efficient technology and risk transfer platforms, and a relatively well-connected industry.

These factors have preserved the ability to match capital with desired risk transfer and we expect these trends to continue for upcoming January renewals. Throughout the last six months, some global insurers were able to effectively increase property catastrophe risk transfer to mitigate further impact of COVID-19 losses and peak zone capacity renewed in a relatively orderly fashion during the spring.

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. 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.

Undoubtedly, cedents able to articulate portfolio impacts of COVID-19 not only from losses but changing primary market trends will be best positioned for renewals. Global reinsurance capital increased through Q2 ending the quarter just 2 percent below year end 2019 at USD 610 billion, despite a fall to USD 590 billion at the end of Q1. Combined with new issuances, traditional reinsurance capital now stands at USD 519 billion.

While alternative capital remains impacted by trapped capital from historical losses, the diversification aspect of reinsurance risk continues to draw investors and remains a significant portion (circa 15 percent) of global reinsurance capital for the market ending Q2 at approximately USD 91 billion. To date, insured global catastrophe losses stand at USD 54 billion for the year; below full year 2019 estimates of USD 75 billion.

That said, more than 60 percent of 2020 insured losses have been caused by secondary perils and eight of the last ten years have seen higher economic losses from secondary perils than primary perils. These industry trends coupled with higher quality claims information demonstrate the need to better harness data and analytics, and develop custom views of insurer risk that can further improve the ability to trade catastrophe risk.

Read Aon's full report here


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