At a “Reinsurance Renewal Season” briefing, senior leaders from Aon gathered to discuss global market dynamics amid challenging market conditions. Mike van Slooten, Aon’s Head of Business Intelligence and Reinsurance, highlighted how insured losses from secondary risks will continue to be at record levels, with losses in 2024 expected to reach $100 billion, regardless of what happens in the rest of the Atlantic hurricane season.

On the loss front, he said litigation funding, adverse legal environments and emerging risks were creating significant uncertainty around ultimate loss costs. The question on the market’s mind, addressed by Amanda Lyons (pictured), global head of reinsurance products, is “Are we heading into a tough reinsurance loss market?”

“We certainly don’t think the reinsurance market is difficult per se,” she said. “There is certainly no shortage of capacity in the casualty reinsurance space. Yes, there are challenges from multiple angles. Think of the continued development from years of weak markets, the increase in nuclear judgments compounded by continued abuse of the legal system.

“However, there are a lot of positive trends that we are seeing on the core side, and reinsurance capacity has been waiting on the sidelines for that change to start happening. So, on the core side, clients have realized that focusing on claims is critical including, specifically, early intervention and rolling claims settlement strategies. Focusing on loss trends and getting a rate that exceeds that is critical.”

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How can reinsurance companies maintain their relevance?

Lyons noted that Aon’s commercial risk colleagues expect growth to start picking up in the third quarter, which will depend on what clients have already done in terms of deductibles and limits. She said it is important to consider how reinsurers can continue to be relevant to clients.

For example, one of the negative aspects that comes up in conversations on a regular basis is about abuse of the legal system. There are certain things that clients can do to achieve better outcomes, but some of them are out of their hands. “So we want reinsurers and our reinsurance partners to work with us and our clients to help clients come up with strategies around this and push legislation significantly.”

Is there enough capacity to reinsure accidents?

Looking at the casualty reinsurance landscape, Lyons said there is significant capacity in the market and her team’s focus is on working with clients to help them differentiate themselves from the general view of casualty loss trends. She said there are many insurer clients who are progressing through the soft market development and therefore are not really feeling the pain of the last few quarters. They need to be differentiated as such.

“For clients that have had some negative developments, the focus of the renewal will really be around paying for what caused that development and the changes that have been made since then,” she said. One area of ​​focus is claims handling and the changes that have been made in recent years around the claims triage and settlement process, and whether that shift in strategy has resulted in faster claims settlements. Another area will be around profitability in recent years.

“We think one of the issues around this is that in a weak market, there is a huge push for insurers to lower limits,” she said. “While no one disputes that this was not the right move, there may be unintended consequences – reserves are built up faster and claims may settle faster because there are shorter limits.”

“So the trade-off between faster infection progression versus the incredibly higher potential losses due to larger limits absolutely needs to be discussed in all of our renovations.”

Another factor that Aon believes could accelerate the pace of development is the continued focus on nuclear or social inflationary judgments. Given the increased focus on taking litigation to court, Lyons said many clients have reassessed their strategy and developed a more specific plaintiff’s counsel strategy. “While a client avoiding a case going to trial may be a very good outcome, it could again lead to faster settlement patterns, and we need to reassess our actuarial assumptions and methods to accommodate that,” he said.

She said renewal discussions would also inevitably focus on trend. While everyone agreed that trend rates were up for general casualty lines, more specifics on this would lead to more productive conversations. These conversations can only be considered in conjunction with rate talks. “There’s a lot of positive momentum in the third quarter and we think clients are doing their best on general casualty rates,” she said.

“Overall, we feel good about the casualty insurance market,” she said. “While there will be challenges, this will be a very analytical refresh for all of our clients. We are very much in the know in terms of the data that we may be able to get with our clients and working with our reinsurance partners. We believe they will be successful.”

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