…and the new cyclone pool is doing its bit by helping to ease capacity constraints

By Bernice Han

The January reinsurance renewals season, which focuses mainly on US and European risks, was a tough one, so Australian insurers were expecting similarly rough treatment at the mid-year renewals. But the reinsurers provided a surprise.

Rate increases are still in the double digits but, critically for the Australian market, reinsurers have provided some relief via increases in capacity.

As global broker Aon explains in a market update for Australia: “After a turbulent January 1, which saw a major shift in reinsurer appetite, a sense of order returned to renewals at the mid-year.”

The mid-year renewals are key for the Australian market as the majority of property catastrophe accounts in the country renew at June 1 or July 1. They come after last year’s catastrophic floods – the worst on record in terms of insured losses for natural disasters.

So heading into the mid-year contract talks, property was seen as being under severe duress. But the reinsurers have displayed a willingness to provide the capacity for insurers to take on more business.

“Despite headwinds, the 2023 mid-year renewal was orderly and capacity was sufficient, albeit at elevated pricing,” Aon’s Reinsurance Market Dynamics for June and July says.

“Capacity was stable and sufficient to meet demand, despite a number of significant catastrophe events in recent years.”

Aon says Australian insurers were generally prepared for the renewal, anticipating reinsurers’ need for higher retentions and pricing.

The report also says the cyclone reinsurance pool, which commenced more than a year ago, helped ease capacity constraints.

“The market benefited at the mid-year renewal from new capacity provided by the Australian cyclone reinsurance pool… As a result, the market purchased around 10-15% less catastrophe limit at mid-year than in 2022.”

Updates provided by Suncorp and IAG, who rank among the world’s biggest reinsurance customers, indicate they have had to pay more for property catastrophe reinsurance. But that also points to the strength of the two dominant Australian insurers.

Hunter Green Institutional Broking Director Charlie Green, who met key stakeholders during his recent visit to the London reinsurance market, says reinsurers’ appetite for Australian business is “still strong”.

“They are still very happy to deploy capital here because they know that through the cycle they will make good returns,” Mr Green tells Insurance News.

Gallagher Re says the July renewals were “orderly and rational” despite a continuation of the pricing and structural market dynamics that defined the January 1 session, which are dominated by US and European buyers.

“Capacity was available, with certain reinsurers openly looking to increase shares if their expectations on pricing increases were met,” the reinsurance broker says.