Marcell d’Aon: Non-life insurance and new products offer opportunities for reinsurers | New
In an interview, Marcell, who is CEO of Aon’s Reinsurance Solutions business, acknowledged the realities of the capacity imbalance in the real estate cat and the drivers behind it, but said the industry should not stand focus on the issue.
“We do a lot of things besides cat ownership. We are excited about the state of the global P&C insurance market and reinsurance’s appetite for it,” the executive said.
As noted earlier, there are signs of moderation in some segments of property and casualty insurance – and in public D&Os within professional liability, there has been a significant easing of insurance pricing over the past few years. month.
With growing concerns about the impact of social inflation, this has led to suggestions that the downward pressure on ceding commissions for accident quota shares will increase in future renewals from historically high levels, as reinsurers seek to offset a perception of high risk as rates also decline.
While acknowledging reinsurers are likely to push for a better deal, Marcell said the business momentum remains very attractive to them, with underlying portfolios benefiting from the positive impact of compounding rate increases. every year since the market downturn in 2019 as well as shortenings. limits.
“We believe reinsurers get the highest net rate per million dollars of ceded exposure. Sure, cessions have gone up, but initial limits have gone down and rates have gone up, so the net net for reinsurers is probably one of the best rating environments they’ve ever seen.
“Of course, there are concerns about social inflation and the impact on reserves, but I think it continues to strengthen the resolve of insurers to maintain rate levels and not to extend limits enormously and to be disciplined in their underwriting, so now is the perfect time to be a P&C reinsurer,” he argued.
That means crash market momentum should be stable as renewal talks progress, with limited upward or downward pressure on cession fees, Marcell suggested.
But he also said different buying motives among ceding companies would shape renewal dynamics for casualties, and potentially other business sectors.
“Not all clients are equal, regardless of the average range of ceding commissions. For some businesses P&C reinsurance is effectively permanent capital, but for others it’s a conscious choice whether to buy it or not, and that’s a very different experience,” he continued.
Where it had been a conscious choice, reinsurers were willing to support increased cessions because economic conditions continued to improve as rates rose and portfolios were derisked.
In most areas of property and casualty reinsurance, reinsurers still enjoy a “huge risk package” that will be better on average than last year, Marcell said.
“In this environment, transferors still need to buy a product that does something for them on the commission side to make it worthwhile to actually transfer the risk,” he added.
The alternative could see large, well-capitalized insurers with a discretionary approach to buying P&C reinsurance retain the risk instead.
Leverage relationships to grow
However, Marcell suggested that reinsurers that are more willing to support ceding companies in a tight real estate market could reap the benefits in other areas of their portfolio.
“I think it’s going to be a pretty stable environment overall, but where these reinsurers step in and help out in the nat cat space, they’ll be asking for more exposure if they don’t already have it in the accident space,” said the CEO of Aon’s Reinsurance Solutions.
“If hurricane capacity becomes as rare as people fear, then reinsurers would use it to influence their ability to see a wider range of products from their core partners.”
Marcell also pointed to other growth opportunities for reinsurers, including established areas like specialty and emerging areas of risk transfer such as intellectual property.
As has been well documented, specialty lines such as Navy, Air Force and Political Risk faced challenges in 2022 amid the fallout from the Russia-Ukraine conflict.
Marcell said the market reacted “reasonably well,” both in terms of rates and the articulation of industry exposures.
“There hasn’t been a general panic and people are thinking about how best to protect their businesses and seize the opportunity of a positive rate environment.
“There will certainly be new opportunities in both the types and amount of protection purchased,” he observed.
During this time, Aon has been at the forefront of a number of new product innovations in other segments, including the emerging area of intellectual property risk transfer.
It also represents a significant growth opportunity for reinsurers, Marcell said.
Aon’s reinsurance arm has worked closely with the company’s commercial risk business under the Aon United banner to innovate the product, in line with its pioneering development of the corporate mortgage reinsurance market. government-sponsored for the past decade or more.
Initially, insurers largely participated in early IP transactions on a net basis. But after a number of successful transactions, the size of the transaction increased and with it the demand for greater amounts of capacity.
“You solve this in two ways: by getting people to write longer lines and by getting more people to write the business – both happen. And on the larger line size, we did several quota share reinsurance transactions that have been successfully placed,” he said.
Marcell said reinsurers have so far “dipped their toe” and would need more education on the nature and benefits of the product.
But here, too, leverage could come into play, with ceding companies that have a broader relationship with a reinsurer being better placed to gain support in an emerging segment like IP.
ILS will not significantly impact capacity…yet
The increase in alternative capital activity in the property and casualty (re)insurance sector is a welcome addition, but should not have a significant impact on how the product is bought and sold, at least in the short term. , according to Marcell d’Aon.
He noted the emergence of players such as Vesttoo and Longtail Re, which along with others including Ledger Investing and Multi-Strat have provided ILS capital through a range of structures in areas such as the program sector Americans.
“We’ve partnered with some of these players in reinsurance as well as insurance with our commercial risk colleagues, where we’re trying to create new limits for new products.
“I hope more of them will come to market to help solve the challenges we face. Having new capital with different ways of thinking about risk is great,” Marcell said.
However, he suggested that at least in the short term, these types of funds will not have a marked impact on how property and casualty reinsurance is purchased, although he would not rule it out in the longer term.
“Obstacles such as developing more nuanced products and building relationships with ceding companies can be overcome over time. But at the end of the day, it requires a commitment to a long-tail health insurance product, to permanently transfer the risk, and that’s something these companies will struggle with,” the executive said. .
“That doesn’t mean they don’t belong in the solution set, though.”