While road accidents took their rightful place at the table at this year’s Monte Carlo reinsurance conference, property remained firmly entrenched as the ‘favourite’ in the reinsurance world.

In Aon’s pre-conference “Reinsurance Renewal Season” briefing, Tracy Hattlestad (pictured), Aon’s head of property reinsurance, outlined her outlook for the market going forward, if current conditions persist. She broke the conversation down into five key areas, with strong capacity to withstand property catastrophe risk being the first. “Despite no new players entering the market, the increase in rates and retentions over the past few years, coupled with reinsurers’ earnings over the past 18 months, has significantly increased the supply of catastrophe risk available.”

This was evident throughout 2024, which saw a roughly 10% increase in demand across the market, which was well met by supply from reinsurers, and the catastrophe bond community in particular. Some of that was due to higher inflation and increased private marketing buying in peak risk areas of Florida, she said. Some of it was due to pent-up demand from 2023 buying and budget constraints, as well as an evolving view of risk.

Cat bond issuances continue to hit new highs and are growing faster than traditional markets, she said. Meanwhile, the number of sponsors has risen from 46 about a year ago to 66 in the past 12 months, and more than $45 billion of cat bond capacity is outstanding in the cat market today. “In terms of future inflation trends, we think they have slowed. We expect demand to continue to grow in 2025, albeit at a slower rate than we saw in 2024, likely to be 5% to 5% below that.”

Reinsurance returns and loss risks

The second area that Hattlestad highlighted was that even with the expected rate relief, the expected returns from reinsurers remain attractive and are likely to meet the target ROE expectations. She said there was no indication that the market should forget the market activity that took place between 2017 and 2022, but it was important to remember that before that, the back and forth of years of increased loss experience and positive reinsurer results was fostering a really strong and balanced relationship with reinsurers and their successors.

“We expect that to happen again in 2025,” she said. “Our internal analysis of the global real estate market, based on a multi-model and historical loss-adjusted view, suggests that even with these softening pricing trends, reinsurers will achieve their target ROE levels, with average or expected loss outcomes. We expect that to happen with our risk pricing in 2025.”

Third, Hattlestad noted that the market is likely to remain competitive in catastrophe risk. Against this backdrop of abundant supply, reinsurers will create competition, she said, and Aon expects reinsurers to come to the market with a partnership-based approach. This takes several forms, one being support across all layers of property catastrophe programmes worldwide, but also a more holistic approach to other positions that underwriters are looking to buy into today’s market. Understanding these priorities for individual underwriters will be key for any reinsurers looking to realise their growth ambitions.

Frequency protection and renewal expectations

“(Number four), the market could do more to provide recurring protection for cedants,” Hattlestad said. “Just putting property losses into context, we saw nearly $125 billion in insured catastrophe losses in 2023, as a year, and the vast majority of that was retained by insurers. I think we all recognize that. More than 50% of losses in the last two decades have come from catastrophe losses other than hurricanes and earthquakes. And for the last five years, severe convective storms have topped hurricane risk losses as the top cause of insured catastrophe losses in the market.”

“As a market, we expect reinsurers to have capital to use to protect against the volatility of this risk, and those who are able to work with Aon and affiliates to create customised frequency protection that is fit for purpose – as it is different for each affiliate – will be best positioned to grow across their core clients and see stronger long-term gains in the market.”

The fifth and final trend highlighted by Hattlestad relates to overall reinsurance renewal expectations, with Aon expecting the current market trajectory to see more competitive renewal pricing continue. Insurers will have high expectations for reinsurers who meet rate submission and license issuance deadlines in a consistent manner, she said. “Responding to individual underwriters’ priorities will be a key indicator for insurers of the level of commitment a reinsurer is making to the renewal process.”