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Property cat market finding ‘equilibrium’ as capital returns

Several established reinsurers have already successfully raised additional funds in the past year to help them take advantage of the current hard market conditions

Big players are becoming more active and investors are looking to participate, Aon president Eric Andersen says

The property catastrophe reinsurance market is starting to reach an equilibrium as more capital returns, an Aon executive has said.

Aon president Eric Andersen said both investors and larger carriers were seeing more opportunity in the property catastrophe market and were becoming more active.

But, he said, unlike in other years where hard markets have led to a wave of reinsurers to enter the market, Andersen said much of this capital was going to existing players.

“On the overall capital provision of the reinsurance market, you’re starting to see an equilibrium,” Andersen said.

He continued: “You’re seeing the big players getting more active, who see opportunities, especially on the property cat side. And you’re seeing investors look to participate in support, either through their funds or other ways: not necessarily in new company creation, which is what would normally happen in this cycle, but more in support of existing players who are already leaders in the industry.”

The property catastrophe insurance-linked securities market was also picking up again, Andersen said. “We're seeing investors that have historically invested in cat bonds allocate more to it… [and] investors that had walked away from the area have sort of returned,” he said.

Several established reinsurers have already successfully raised additional funds in the past year to help them take advantage of the current hard market conditions. In November, Beazley raised £350m through a share placing just weeks after the firm’s chief executive, Andrew Cox, told investors a hardening market created “strategic opportunities” for growth.

Similarly, in March, Ariel Re secured $270m of new capital to support through Lloyd’s London Bridge 2 vehicle. And, in May, Everest Re said it was targeting $1.5bn in a share offering.

Andersen added that the hard reinsurance market had changed the way primary insurers have been buying cover, and that he expected the broker to be busy in the second half of the year as insurers look to buy facultative cover on an individual risk basis to make up for gaps left earlier in the year.

“Clients have been dealing with the changing reinsurance market [and] they’ve made their own decisions. Sometimes they don’t buy certain layers, sometimes they buy less, sometimes they buy differently,” said Andersen.

“Primary clients now may have less low-level reinsurance protection on property catastrophe, or secondary perils like wildfires or hailstorms or what have you, and so the ability for the insurers to manage that exposure, the tool that they would use now is facultative reinsurance on an individual rights basis… Facultative reinsurance is also being used on things like captives or large corporates, where they’re also retaining more of the risk themselves,” he said.

Earlier this month, Gallagher Re global chief executive Tom Wakefield said the reinsurance market appeared to be heading towards price stability given the limited new capacity entering the sector. 

Andersen’s comments come off the back of Aon’s second quarter results, in which its reinsurance arm booked 9% organic growth in the quarter, increasing revenues to $607m.

The broking giant also reported 5% organic growth in its corporate broking division in the second quarter of the year.

Overall, Aon’s total revenue increased 7% to $3.2bn in the second quarter, including organic revenue growth of 6%, and the firm’s adjusted operating margin increased 110 basis points to 27.3%.





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