The reinsurance market is “in a better place” going into Baden-Baden 2024

Aon’s Reinsurance Solutions EMEA co-CEOs Alfonso Valera and Tomas Novotny provide an overview of how market dynamics have evolved in the past 12 months, and the way forward to client growth.

The reinsurance industry is preparing for the 2025 renewals amid positive momentum after a year of significant growth in the EMEA market.

Technological advancements, such as in AI and catastrophe modelling, are enhancing risk assessment. There are challenges for reinsurers in regions affected by local losses, but also opportunities for growth through continued product innovation and the integrated cooperation of solution lines.

These are among the key factors supporting client growth ambitions, according to Alfonso Valera and Tomas Novotny at Aon’s Reinsurance Solutions, who we spoke to ahead of Baden-Baden 2024.

Ahead of the renewals, what are the current market dynamics in EMEA and how have they evolved over the past 12 months?

Tomas Novotny: Last January’s renewals were already relatively flat in terms of reinsurance pricing, and we ended up, on average, with a relatively high oversubscription from reinsurers during 2024. Global mid-year renewals demonstrated similar dynamics: a greater appetite for insurance risk, flat pricing and even rate reductions. I would describe the current market as profitable and disciplined.

Alfonso Valera: There is more capacity. I wouldn't say there are all-time high returns on equity, but at 17.6 percent on average for reinsurance companies in the first half of the year, we're looking at significant growth across the industry. It’s a market that's in growth mode globally, with great returns.

TN: Following the significant shift in reinsurance structures after 2023, retentions and prices increased significantly, and reinsurers globally are in a better place than they were in 2021-22. However, there is now a significant change in the way exposures are distributed in the reinsurance chain, and cedants are left with much higher retained losses.

We are continuously advocating on behalf of our clients to move back towards a more equitable exposure distribution and for reinsurers to provide more cover for frequency events.

Will there be any underlying themes in the discussions at Baden-Baden this year?

AV: We expect that appetite for reinsurance will continue. It’ll be a bit different for cedants coming from countries affected by local losses, such as the UAE earlier in the year with floods, or central Europe now. But such cedants can be successful at the renewals where they are able to demonstrate proactive claims management, risk analysis and a superior portfolio. We are of course helping them to achieve this.

How have product innovation and technological solutions helped to assist clients’ strategic goals?

TN: Innovations through ILS and spread loss products are gaining traction. After 2023, clients were facing volatility and increased insurance pricing. For some of them, it meant that ILS was suddenly a more attractive proposition than before. I would expect spread loss to slow down as traditional volatility solutions become more available. Reinsurers understand that if they keep on implicitly sending clients elsewhere for these solutions, they will become less relevant. And of course, they don't want that.

AV: We have a long-term investment in sophisticated catastrophe modelling, and our technology-driven modelling unit, Impact Forecasting, provides clients with insights that help them to develop a unique view of risk to present to reinsurers. Through such innovation, we are bringing clarity and confidence to risk analysis and helping clients to shape better business decisions.

TN: A good example was how technological solutions assisted in the areas of central Europe recently affected by flooding, where our Impact Forecasting model was able to calculate expected losses during the event. So even before the first loss reports, before adjusters were able to visit, our modellers were able to predict the expected loss for each of the clients’ portfolios. It was valuable to be able to then compare it and benchmark it with the first actual loss reports that clients were providing. As a result, loss reserving was fast and should be very robust.

How are Aon’s Risk Capital structure and insurance vertical being used to assist clients in EMEA?

TN: It’s a new mindset. Whereas in the past, the expertise would be coming to clients through a specific solution line, now we work towards an integrated cooperation of all our solution lines. Ultimately, the client just wants the best solution for their specific situation irrespective of what solution lines work on it.

AV: Aon’s Reinsurance Solutions unit has always been quite technical in how we analyse risk, be it through modelling or reinsurance optimisation. Our ongoing strategy is also to leverage some of these tools and practices for our large corporate commercial risk clients in modelling and in capital advice. So, there is a stronger connectivity than there ever was.

What profitable growth ambitions can you see for this year and beyond?

AV: If you look purely at the catastrophe space, just 31 percent of economic losses in 2023 were covered by insurance. So, there is a 69 percent protection gap between economic losses and insured losses. That’s a major growth opportunity for our clients.

It’s a social function of insurance too. When we see a catastrophe in markets with low insurance penetration, the hardship and the time that it takes the economies to get back on their feet is longer. So, there are advanced discussions to increase insurance penetration in Italy and in Greece, for example. We are working on reducing this protection gap and increasing insurance penetration in Europe and beyond.