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 experienced "significant volatility" in 2024, with diverse events including earthquake and airline losses in Japan; the Baltimore bridge collapse in the U.S.; historic flooding in Dubai, and the CrowdStrike global computer outage.

However, Aon argued that such losses reinforce recurrent, yet critical, themes for the industry - "the growing interconnectivity and complexity of risk, volatility of losses, and the widening gap between insured and economic losses".

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 percent during the same period.

Furthermore, according to the report, some of the industry’s largest reinsurers reported an return on equity of more than 25 percent, "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.

In contrast, the group found that higher retentions in insurers’ catastrophe programs reduced capacity for frequency covers and resulted in an unequal distribution of underwriting profit across the insurance value chain.

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.”

More broadly, the report showed that retained earnings, new inflows to the catastrophe bond market, and recovering asset values drove an increase in global reinsurer capital, which reached a record high of $695bn at the end of June 2024, a $25bn increase compared to the 2023 year end.

Renewals in 2024 have also seen reinsurance pricing gradually decrease, partly due to an increase in alternative capital to $110bn, and with rate reductions granted by reinsurers for the best performing risks.

Aon also suggested that there could be an increase in pricing competition in 2025, predicting that insurers will begin to see greater flexibility around capacity provision and coverages.

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