Reinsurers encouraged to 'lean into risk'

Written by Michael Griffiths

09/09/2024

Reinsurers should look to “lean into risk” to support clients and drive a more sustainable market, Aon has said.

Launching its report, the ultimate guide to the reinsurance renewal, the group contrasted the “robust” financial performance of the reinsurance industry against a backdrop of insurer losses and increasing complexity of risk.

The report also highlighted the “untapped” growth potential of the industry, noting that the key ratio of global insurance premium to gross domestic product has remained at approximately 1.8 per cent since 2010, despite exposure growth and unmet client need.

In the report, Aon noted that re/insurers have experienced "significant volatility" in 2024, with diverse events including earthquake and airline losses in Japan; the Baltimore bridge collapse in the US, historic flooding in Dubai, and the CrowdStrike global computer outage.

It also pointed out that, despite natural catastrophe re/insurance payouts reaching $58bn during the first half of 2024, reinsurers achieved an average common return on equity of 17.6% during the same period.

Furthermore, according to the report, some of the industry’s largest reinsurers reported a return on equity of more than 25%, "well above" that of most primary insurers and their own cost of capital, which, according to Aon’s performance analysis, could lead to higher growth.

However, Aon UK Reinsurance Solutions CEO, Rupert Moore, argued that, if the reinsurance market is to provide real value, "it must play a more active role in helping insurers to manage frequency losses and earnings volatility".

“If reinsurers continue to run from risk, it will force insurers to follow suit and we will all become part of a shrinking, and less relevant industry," he stated.

“The industry can either lean into the opportunities created by a world of changing risk or retrench and watch as a greater proportion of risk is retained or shifts to the public sector and capital markets.”

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