Buyers at the reinsurance renewals on June 1 and July 1 faced capacity constraints, particularly for disaster exposure in Florida, and reinsurers deviated completely from certain specific coverage, according to a report on Thursday from Aon PLC.
At the same time, industrial capital was lower at the end of the first quarter of 2022 compared with the end of 2021.
The property’s natural disaster capacity decreased “significantly, and some reinsurance companies would not write off certain risks … at any cost,” such as the lower levels of reinsurance coverage for disaster risk in Florida.
Total reinsurance capital was $ 645 billion on March 31, a decrease of $ 30 billion, or 4.44%, compared to the end of 2021. The decline was largely due to unrealized losses on bonds due to rising interest rates, Aon said. Alternative capital, part of this sum, rose $ 1 billion, or 1%, to $ 97 billion.
The disaster bond markets are seeing increased activity with the cuts in reinsurers’ capacity, Aon said. “Demand for emergency bonds is currently exceeding supply, as insurance companies and reinsurance companies are increasingly turning to alternative capital markets to complement traditional reinsurance … in a challenging environment.”
In the first quarter of 2022, the gross income premium increased by an average of 15% among 19 reinsurance companies from the American Reinsurance Association that reported results. The average net expense ratio for a small subset of 17 reinsurers for which data was available was 92.9%, the report said.
Future property reinsurance renewals may encounter “a real” hard “market, where total demand cannot be easily met, Aon said, pointing to inflation, economic and financial market uncertainty and climate change as important headwinds.