Reinsurance Market Outlook – 1 April 2013
A day after Willis Re, Aon Benfield has published its current view of the global reinsurance market.
The themes are similar, but the emphasis is different. As usual, Aon Benfield misses no opportunity to tell its clients what a good deal they are getting.
The headline is that reinsurance buyers are getting ‘materially better terms’. New capital is flowing into the insurance-linked securities (ILS) and collateralized market – the non-traditional reinsurance market – resulting in risk adjusted price decreases of 25% to 70% for peak US hurricane and earthquake exposed transactions, according to Aon Benfield.
On Aon Benfield’s calculations, traditional reinsurance capital grew by 11% during 2012 to reach $505 billion. Reinsurance demand was flat, but with excess capital and the threat from alternative reinsurance markets, the traditional reinsurance market is beginning to respond. Leading reinsurers are said to be ‘taking positive actions to lower their costs of managing assumed volatility’ i.e preparing to reduce prices.
Aon Benfield devotes little space to the Japanese renewals, which are the main renewal event on 1 April, except to note that ‘an orderly market prevailed’. Clearly this report is intended to influence clients’ and reinsurers’ expectations for the forthcoming June and July property reinsurance renewal negotiations. We shall see what actually happens, but even making allowance for Aon Benfield’s desire to reassure and attract clients, it is clear that alternative ILS and collateralized reinsurance markets are an increasing influence and this is a theme we shall be returning to in future publications.