Aon’s “Reinsurance Market Outlook” of January 2020 summarised the more important factors affecting the January renewals:
- 2019 Global catastrophe losses – Aon estimated these at some US$62bn; significantly lower than 2017 and 2018 (US$250bn total) and 23% lower than the 10-year recorded average of US$81bn.
- Fewer US landfalling hurricanes and US wildfires were the chief causes of this reduction nevertheless the US was the source of 50% of the 2019 catastrophe losses. Fortunately wildfire losses are expected to be just US$1bn and Hurricane Dorian was not significant either.
- Japanese losses however such as Typhoons Hagibis and Faxai may reach US$15bn – the second year in a row that Japanese typhoon losses have reached this level. Development of these losses is being keenly watched as the reinsurance industry including the ILS sector was caught out by the deterioration of the quantum of 2018’s typhoons Jebi and Trami.
- 2019 global reinsurer capital – Aon estimates that the capital available to reinsurers from traditional sources as well as ILS investors as a whole increased by 7% to US$625bn as at 30/9/2019. This is sufficient for the market’s needs but higher rates are expected during 2020.
- Amount of ILS or alternative capital - 2017/18’s level of catastrophe losses (US$250bn) followed by deterioration during 2019 of Hurricane Irma and Typhoon Jebi, and unexpectedly increased “secondary” peril losses such as wildfires and flood led to a lower ILS or “alternative” capital of US$93bn. Sentiment concerning climate change, catastrophe models and catastrophe loss deterioration has not helped.
- Investors have been exiting the ILS sector, and following a marked change of risk appetite, as described further below, the capital provided by “alternative” providers such as pension/hedge funds and private equity, declined 4% and it is estimated that some US$15bn is trapped for uncertain loss amounts and therefore not available for renewals.
Aon’s Market Outlook is a useful summary of the prevailing influences at the time of the January renewals. The expectations are that there will be significant reinsurance rate increases for Japanese and Florida business in April and June respectively and, that there will be a general hardening of re/insurance rates as the year progresses. Also, we expect a continued broad hardening in insurance classes such as US insurance property and casualty which have been strengthening for some time, and other classes such as marine, aviation and energy.