Brought to you by:

Mid-year renewals point to strengths of Australian market 

As the mid-year reinsurance renewals draw to a close, a clearer picture on the state of play has emerged: tough pricing conditions are not going away just yet but reinsurers’ appetite for what they perceive as good risks have improved since the start of the year. 

Early reports from reinsurers and analyst assessments indicate the mid-year renewals – key for the Australian market as the majority of property catastrophe accounts renew at June 1 or July 1 – have defied expectations for a worst-case scenario after last year’s catastrophic floods and other natural disasters. 

While double-digit rate increases are still being pushed through, reinsurers have at the same time deployed more capacity to meet clients’ needs at the right terms, albeit at higher prices. 

In Australia’s case, capacity pressures have also eased somewhat since the cyclone reinsurance pool commenced on July 1 last year. Broker Aon says the introduction of the pool has led to the market purchasing around 10-15% less catastrophe limit at mid-year than in 2022, easing demand-supply pressure at the renewal period. 

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 told 

For New Zealand, it’s different story altogether. “In New Zealand it is less strong. Everyone is backing away from it at a million miles an hour,” Mr Green said. 

Updates provided by Suncorp and IAG, who rank as among the biggest customers of reinsurance covers, indicate they have had to pay more for property catastrophe protection but it also points to the strength of the two dominant Australian insurers. 

“Suncorp has had to pay up for their reinsurance this year as has IAG but they have had to pay up far less than weaker competitors,” Mr Green said. 

“The companies with the strong balance sheets can obtain the best reinsurance outcomes and Suncorp and IAG have just demonstrated that. 

“The reason they get great rates is because they are better at picking risks and they are better at managing claims and I think that’s a big part of the answer for the reinsurers. They go for these guys because they are good at what they do.” 

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 renewals, 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 Gallagher-owned global reinsurance broker says of the Australian market in 1st View, a report it issues three times a year at the key renewal seasons of January 1, April 1 and July 1. 

The Gallagher Re report says aggregate capacity remains limited – which may explain why Suncorp has decided not to renew its aggregate excess of loss cover.  

Suncorp says it made the decision after doing “comprehensive” modelling on its cost and benefits. Aggregate excess means the reinsurer indemnifies an insurance company – the reinsured – for an aggregate or cumulative amount of losses in excess of a specified aggregate amount. 

Reinsurance specialist Guy Carpenter in its mid-year renewals update similarly says additional capacity and increased appetite were the hallmarks of the property market even as risk-adjusted rate increases ranged from +10% to +50%. 

A strong demand for limit persists, but market corrections have rebalanced the supply/demand disparity faced by many regions a year ago, Guy Carpenter says. 

“Across the board, pricing is firm with a wide range of risk-adjusted rate changes seen throughout individual layers.” 

The market is already shifting its attention to the next renewals – January 1 – and guessing what lies in store. One thing is clear though: the market is not about to decelerate from its current hard cycle. 

“Double digit is a starting point. Everyone has a slightly different view but one thing everybody in the industry is still taking about is a hardening market and not a softening market,” Mr Green said. 

“In their dreams the industry is looking for a softening on January 1 2024. Whether that turns up or not is a $64 question.”