Re/insurance well-positioned to absorb $34bn – $50bn Helene and Milton losses: Aon

According to Aon’s Reinsurance Solutions division, combined industry losses from hurricanes Helene and Milton are expected to fall within a range of $34 billion to $50 billion, at which level insurance and reinsurance sector capital is well-positioned to absorb them and the events underscored the value of integrating innovative solutions such as parametrics.

“The short-term prospect of a return to harder market conditions is unlikely, and the 2025 renewal environment is expected to remain stable,” Aon explained.

Adding, “As a result, the moderating property insurance market is expected to continue, at least in the short term into 2025.”

“As a result of rate increases and retention resets in the reinsurance market in 2023, ceded losses to reinsurers from Milton are expected to produce industry loss ratios near their planned levels,” explained Tracy Hatlestad, executive managing director and global property segment leader with Aon’s Reinsurance Solutions.

Reinsurance losses from both of these hurricane events will be manageable, Aon said while the company believes “Further, metrics point to a stable reinsurance market into 2025.”

“Clients with heavy Florida and Gulf Coast exposure concentrations may be slightly more challenged, however, we expect the moderating property market to continue, especially for well-performing risks,” Vincent Flood, head of U.S. Property with Aon highlighted. “We believe markets will continue to be aggressive through the remainder of 2024 and into 2025.”

Aon went on to point out that reinsurers are in the midst of an 18 month period of strong performance, with a return on equity nearly double the average cost of equity in 2023 and H1 2024.

“That strength is typically passed to the primary markets in lower reinsurance treaty premiums,” signalling that the broker will not be expecting broad market hardening of any kind after these recent catastrophes.

“We’ve seen such a strong rebound in reinsurance capital and policyholder surplus,” added Peter Tavella, chief broking officer for National Property Broking at Aon. “That’s a function of both improved underwriting results and investment income. For all those reasons, we think the primary market is going to yield flat to potential rate reductions in the short term.”

However, Aon also delivers a cautionary note, saying that climate change-driven catastrophes could drive longer-term market conditions.

“We continue to stress with our clients the need to build business continuity and resilience plans, including rebuilding in a more resilient way to make their locations less subject to physical damage from future events,” said Jill Dalton, managing director of Property Risk Consulting with Aon.

The broker urges risk managers to rebuild and reinforce with resilience in mind, to use data so that they can deliver updated risk exposures to assist in optimising risk transfer arrangements, and to consider complementing property programs with responsive parametric risk transfer and insurance solutions.

“We’ve seen an increased take-up in alternative risk transfer solutions like parametric products, and events like we have experienced in Florida will only increase that trend,” Flood added.

While Aon notes, that thanks to developments in parametric risk transfer, “Advancements in data and analytics have allowed clients to obtain cover for more perils with greater precision than ever before.”

Aon also explained one client scenario from hurricane Milton, where a large communications firm’s parametric cover was triggered in Orlando, where high wind speeds and low central pressure enabled a rapid payout.

Proceeds hit the firm’s account within a week of the event and could then be used for any losses suffered.

“In five business days, we have gone from event to payout in the hands of the insured,” explained Michael Gruetzmacher, head of Alternative Risk Transfer at Aon. “Our vision is that all nat cat and weather-exposed businesses have this as part of their risk capital stack.”

Separately, in an insurance market report released this week by Aon, Joe Peiser, Chief Executive Officer, Commercial Risk Solutions said that, as that report was being prepared, “We are reviewing the very preliminary assessments of the impact of Hurricane Milton. Early estimates are in the $25 – $40 billion range, which is significant, but not a doomsday scenario.”