It is pretty well known in the industry that this year’s mid-year renewals were challenging.

Tracy Hatlestad, executive managing director and Global Property Segment leader at Aon, said a number of market factors were behind this, including the pullback from reinsurer capacity, which began in late 2021.

This pullback materialised properly only in the first and second quarters of 2022, Hatlestad said. On the demand side inflation also had an impact, representing a break from the historic supply/demand balance.

Factors more familiar to market participants also came into play, such as losses in certain regions that have been experienced over the past five years.

“Losses definitely happened in peak regions that impacted June/July renewals, especially for Florida and Australia,” she said.

Looking ahead to the 1/1 renewals and whether the outlook will be the same as 1/6 or 1/7, Hatlestad said: “There’s pressure given the fact that those outcomes are more formalised after 1/1. We think that some of that will persist. We also see some demand, some expectations of growth at 1/1 that didn’t come in 2022 as a result of inflation, so that’ll have an impact.

“That said, we’re at a pretty good point this year from a ceded catastrophe loss perspective. If we have a result that looks more like the 2013 to 2016 period, that should have a positive effect on what will happen in January and we should more seamlessly get back to a balanced position for 2023.”

A good result would also have a positive effect on some of the non-traditional capacity that could be brought into the market which, she said, “is always a balancing ballast to traditional support”.

Key message for 1/1

Hatlestad’s key message for clients ahead of 1/1 centred on differentiation. She said that she sees it as twofold.

“This is differentiation in how you market yourself as a potential risk buyer of capacity, and also how you think about differentiation of your portfolio in the market. How you might structure it, the trading partners that you work with, for instance. Both sides of that equation are going to be helpful as you go through renewals,” she explained.

Clients need to consider historical loss experience, inflation impacts, their trading partners, and the positions they’ve taken over the last few months, she advised. They also need to think about impacts around climate change, the health of their underwriting portfolios and how they are viewed in the market as far as their strength as an insurance company.

“All of that balances into a reinsurer’s view about trading with you as a client or an insurer. That’s important in every renewal cycle but it’s even more important in times when there’s dislocation in the market.”

Combining capital

Aon’s Reinsurance Solutions aims to approach the market as an agnostic “capital advisor”, not advocating for one style to the exclusion of others on the source of capital, as long as it represents the most appropriate solution for the client. Hatlestad said that this has been a positive ethos, given the capacity-constrained reinsurance market, and has been helping clients to navigate significant volatility and build their business resilience.

“Buyers that looked at how they could combine traditional and non-traditional capital in a well advanced, well thought-out way, had more successful renewals for June and July. And there’s no reason to think that logic won’t prevail as we go into January,” she said.

It can take more time to assess some of those forms of capacity, she explained, especially for new entrants to those markets. With that in mind, she said, it is important that insurers have discussions about the non-traditional side “sooner rather than later”.

Aon was able to support one particular client going into its 1/6 and 1/7 renewals looking for additional capacity with a unique solution, ultimately enabling better business decisions.

Aon’s knowledge of those markets’ appetites, with a potential expansion of historical appetites, enabled the broker to put together “a full slate of coverage that maximised capacity across the piste for the client”.

“It was a unique way of bringing both sides of the house together on traditional and non-traditional and it maximised what was a bit of a capacity crunch on 1/6 and 1/7,” Hatlestad concluded.

Tracy Hatlestad is executive managing director and Global Property Segment leader at Aon. She can be contacted at: tracy.hatlestad@aon.com