Expect more competition in the tail, property cat rates to soften: Aon execs

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.