Aon: Casualty re not in hard market as property softening driven by competition

The casualty treaty is a “nuanced” space but not in hard market territory, while property cat reinsurance is expected to become more competitive priced with strong appetite from reinsurers, according to Aon management.

Speaking during a renewal season briefing ahead of the Monte Carlo Rendez-Vous, Aon’s US casualty leader for Reinsurance Solutions Amanda Lyons said that with positive momentum on primary rates, any downward pressure on casualty quota share cede commissions is unlikely to be significant.

Excess-of-loss covers could come under more pressure because of their leveraged nature to factors such as social inflation.

But she added that upwards movement on XOL rates is also unlikely to be significant, potentially in the mid-to-high single-digits range.

“We definitely don’t think the reinsurance market is hard per se, there's definitely not a shortage of capacity in the casualty reinsurance space,” said Lyons.

She acknowledged challenges from “multiple angles” in the sector, including continued development from soft market years, and increasing nuclear verdicts overlaid with continued legal system abuse.

“But that said, there are a lot of positive trends that we're seeing on the primary side, and reinsurance capacity has been waiting on the sidelines for this change to start to happen.

“On the primary side, clients realize the focus on claims is incredibly important, including specifically early intervention and claim settlement strategies focused on loss trend, and achieving rate in excess of that is absolutely paramount,” Lyons commented.

And she noted that colleagues in Aon’s Commercial Risk Solutions business are projecting rate increases that are starting to pick up at a faster pace in some areas of US casualty.

“One specific example is in the excess casualty space, where we’ve seen an increase in rate on the lead umbrella layers, and now the market is starting to reprice those intermediate layers.

“We’re actually projecting for umbrella overall to be up somewhere between 12 and 20 percent, so obviously keeping up with loss trend in that space and leaving some positive room… and all that’s on top of what clients have already done around deductibles and limits,” she said.

Property getting more competitive

And on property, Aon’s global property segment leader Tracy Hatlestad said expectations are that competitive pressures will take hold at the 1 January renewal and into 2025.

“Broadly speaking Aon expects the current market trajectory to continue. Renewals will continue to be more competitively priced and insurers will have higher expectations for reinsurers meeting deadlines for quoting and clean authorizations in a consistent manner.

“Responsiveness to individual cedent priorities will be a key indicator to insurers of the level of commitment a reinsurer brings to the renewal process and will be a strong decision metric on final line signings across renewals,” said the executive.

She observed that increased demand for cat reinsurance of around 10 percent in 2024 had been well met by supply from reinsurers, and also highlighted the impact of record cat bond issuance in a market that has grown to $45bn on renewal dynamics.

“Even with softening of rates, which we expect, reinsurers expected returns are still attractive and will likely meet target ROE expectations,” said the executive.

“The market will continue to be competitive for cat risk – reinsurers against that backdrop of adequate supply will create competition and we expect the reinsurers to come to market with a partnership minded approach,” she added.

Hatlestad said this will likely take a few forms, including providing support across all layers of property catastrophe programs, but also a more holistic approach to other placements cedants are looking to purchase in today’s market.

She called on the market to do more to provide frequency protection for cedants, given the greater role losses from severe convective storms and other frequency events are playing in the overall industry burden from cat losses.

The executive said that reinsurers that are able to collaborate with Aon to provide custom frequency protection that’s fit for purpose “will be best positioned to grow across their core clients and see stronger long-term gains in the market”.