Reinsurers hit record $695b capital in June 2024

However, Aon predicts more pricing competition in 2025 for insurers.

The global insurance premium to gross domestic product (GDP) ratio has remained around 1.8% since 2010, despite growth in exposure and unmet client needs, according to Aon’s "Ultimate Guide to the Reinsurance Renewal – September 2024" report.

It also revealed the strong financial performance of the reinsurance industry, contrasting the challenges faced by insurers dealing with growing risk complexity and losses. The report emphasises that 

Natural catastrophe reinsurance payouts surged to $58b in the first half of 2024, surpassing the ten-year average of $47b. 

Despite this, reinsurers posted an average return on equity (ROE) of 17.6%, with some reporting ROEs above 25%—well above primary insurers and their own cost of capital. This performance suggests potential for future growth, according to Aon's analysis of 100 global reinsurers.

However, the report highlights that higher retentions in insurers’ catastrophe programmes have reduced capacity for frequency covers, leading to uneven distribution of underwriting profit across the insurance chain. 

Global reinsurer capital hit a record high of $695b by June 30, 2024, an increase of $25b from year-end 2023, driven by retained earnings, new inflows into the catastrophe bond market, and recovering asset values. Reinsurers also saw an uptick in ordinary investment yields, reaching 3.8% in the first half of 2024, up from 3.1% in the same period last year.

Reinsurance pricing has started to decline, partly due to an increase in alternative capital to $110b and reinsurers granting rate reductions for the best-performing risks. 

Aon predicts more pricing competition in 2025, with insurers expected to gain greater flexibility in capacity provision and coverage.

“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,” Rupert Moore, UK CEO of Reinsurance Solutions for Aon, said.

The report also detailed significant volatility in 2024, citing events such as an earthquake and airline losses in Japan, the Baltimore bridge collapse, historic flooding in Dubai, and the CrowdStrike global computer outage.