Aon’s Marcell: Ability to create capacity will be key for brokers in 1.1 cat crunch

Brokers that can harness data and analytics and a scaled presence in the global catastrophe market will be in a strong position to navigate challenging conditions in property cat and create much-needed capacity for clients, according to Andy Marcell, CEO of Aon’s Reinsurance Solutions.

Speaking to The Insurer, Marcell highlighted inflation, concerns over the impact of climate change on peak and secondary perils, a lack of confidence in models, stress on capital from investment volatility and the impact of the strong dollar as among the factors driving a demand-supply imbalance in property cat, particularly in the US, Europe and Australia.

“There’s uncertainty and when there’s uncertainty people want to charge more for that uncertainty,” he commented.

Investor concerns around the level of volatility in cat had also driven a more cautious approach from publicly traded (re)insurers, he added.

“So they’re saying ‘unless the rates are substantially higher, I might as well reduce my commitment to that product line or withdraw, and focus on areas that increase shareholder value’, which is generally insurance over reinsurance,” the executive observed.

In an environment of reinsurer retrenchment, Marcell said it is incumbent on brokers to find ways of accessing enough capacity to meet the growing requirements of cedants and convince those capacity providers they can make money out of property cat.

“For Aon, it’s using our data and analytics, the scale of our position in the global catastrophe market, our understanding of the risk, our understanding of the return, and how to package portions of that business to be able to create capacity for our clients,” he suggested.

“We have to articulate to investors why they should be in this business and that they can make satisfactory or superior returns in the property cat market, and that some of the reasons they are afraid are magnified and misunderstood,” Marcell claimed.

He also asserted that although property cat capacity is global, the dynamics across different territories and perils are markedly different.

“Even in the US cat is not equal. Hurricane risk in the Gulf or Florida is much more of an issue than in New York or Massachusetts, or New Madrid quake, or Cali quake or wildfires.

“The advantage to the reinsurer is actually knowing what the aggregate is to be able to quantify and manage your portfolio of risk. And if you can write a global portfolio, you can still make terrific returns in property cat,” said Marcell.

The executive highlighted efforts made by Aon to create facilities to bring capacity to clients in both its treaty and facultative businesses.

As previously reported, Aon’s Reinsurance Solutions launched a global property cat facility called Marilla just under two years ago.

Initially supported by Swiss Re and PartnerRe, its aim was to bring capacity across the broker’s portfolio of excess-of-loss property cat placements.

Marcell also said Aon has some bespoke treaty facilities in Europe.

In the facultative arena the firm recently expanded its Marlin Latin American facility, and is expanding its European facility called Landmark, as well as those in Asia.

“That’s the direction we need to go, particularly now. We talk to reinsurers about what gets them to put up more aggregate, what return they need by peril or region, and then we can try to figure out a basket of risk to get them to commit some serious capacity,” he explained.

But the executive claimed that not all reinsurance intermediaries have the capabilities to come up with capacity solutions to address the current cat crunch.

“There are very, very few that have the scale and breadth of business to be able to understand the dynamics, to quantify the returns and be able to package risk with investors and risk takers to help clients.

“We have to do it, and it’s not that other newer or smaller firms wouldn’t do this, they can’t! They don’t have the data, or the portfolio to analyse and package and present. So it’s on us to meet the challenge,” he claimed.