New study highlights key opportunities for re/insurance capital across diverse sectors
Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON), has released the September 2016 edition of its Reinsurance Market Outlook report, which provides a comprehensive analysis of the key variables affecting reinsurance buyers in the approach to the January 1 reinsurance renewals.
The report reveals that reinsurance demand has increased over the past 18 months, with the cession ratio across the global property and casualty insurance industry registering a small rise for the first time in several years, and the trend expected to continue for the remainder of 2016.
Eric Andersen, CEO of Aon Benfield, said: “The catalysts for this increased demand for property and casualty reinsurance include factors such as the emergence of poor underwriting results in certain casualty classes, out-sized losses from regional exposures, and the introduction of the Solvency II regulatory regime across the European Union.”
Meanwhile, the report highlights four key emerging areas of growth for the re/insurance industry:
- Property Catastrophe – demand for property catastrophe protection is expected to remain relatively stable for January 2017 renewals, absent any material reinsured loss events. While certain regions affected by regulatory changes may look to secure additional capacity, overall demand change is expected to increase by approximately five percent across the market.
- Mortgage – the demand for re/insurance of US mortgage default exposure continues to grow, driven by both new and existing cedents. Most of the re/insurance purchased is driven by new regulatory capital requirements, as government entities Fannie Mae and Freddie Mac continue to access private markets for credit risk transfer. To date, Aon Benfield has placed around USD10 billion of reinsurance capacity in this sector, which equates to approximately USD2.5 billion of projected lifetime ceded premium.
- Cyber – demand for cyber insurance coverage and product continues. With approximately USD1.7 billion in premium, nearly 90 percent of the market is based in the United States, with annual growth running at 30 to 50 percent. International growth will be driven by upcoming European Union regulations covering data protection that will become effective in 2018.
- Crop – While a more mature market, crop re/insurance has returned to profitability in the US. Growth has mainly emanated from Asia with the Indian market seeing five times the insurance premiums for the 2016/2017 season compared to the year prior. Thailand has also seen growth, albeit not as significant.
The report further reveals that the low interest rate environment that has persisted in the developed world since the 2007 financial crisis has had a pervasive effect on traditional re/insurance carriers that are mainly invested in cash and bonds, and has significantly influenced market behaviour.
The full report can be found at http://aon.io/2c687qL