09 January 2025
Reinsurance Market Update
Gallagher Re’s Aviation and Space (re)insurance team serve many of the World’s leading All-Risk and War insurers. Whilst we are actively engaged with client work throughout the year, January 1st (1/1) is widely recognised as a key renewal date for the reinsurance market.
Key themes
As 2024 concludes and the 1/1 renewals incept, we look back at this past ‘renewal season’ which had the following key themes:
- The extent to which buyers benefited from the surplus of available reinsurance capacity.
- How and when potential claims settlements related to the Russia insurer/lessors dispute may impact reinsurance structures, terms and conditions.
- Where differentiated (re)insurance strategies and relationships help clients bridge the gap between divergent insurance, reinsurance and retro market rating environments.
- Whether alternative sources of capital can fill the gap left by exiting Satellite (re)insurers
In our recent Global Strategic Advisory’s September Reinsurance Market Report, we stated that Global reinsurance dedicated capital currently stands at a total of USD766 billion, an increase of 5.4% from the restated full-year 2023 base. Our in-depth analysis of a subset of 16 reinsurers also reported an improved combined ratio of 84.5% (2023 HY: 87.0%), and an exceptionally strong ROE of 19.6% (2023 HY: 19.2%) - comfortably exceeding the industry’s cost of capital. This strongly improved profitability means those reinsurers have fully recouped the weaker profit years of 2017-2020 and earned a margin on top.
The Aviation Reinsurance Market
With the reinsurance industry seemingly in good health, one might expect it to be more of an Aviation Reinsurance buyers’ market. However, significant recent Aviation and Space loss activity from Boeing Max-related and Satellite claims, and potential further claims activity from the much-publicised Russia/Lessor dispute, suggest otherwise. The co-insurance placement of reinsurance with a long-term partnership approach can potentially restrict buyers’ choice, but the surplus of capacity and value of a strong cross-class relationship inevitably leads to some downward pressure on pricing and a willingness to commit to terms earlier than usual.
So, what does this mean for Aviation Insurance Buyers?
While reinsurance rate increases have softened in 2024 with favourable risk-adjusted reinsurance movement of up to -10%, larger Airline insurance rate reductions in the direct market are squeezing the projected net premium for many Insurers renewing similar reinsurance structures to expiry. In turn, a relatively stable retro rate environment and a continued divergence between the direct and reinsurance markets will only serve to increase pressure on net Underwriting results unless loss experience, deductions, or reinsurance/retro recovery ratios improve.
Insurer management is closely monitoring the situation and continued rate softening in the direct Airline insurance market. This may lead to questions as to whether aviation is the best place to allocate capital going forward. Looking ahead, the unresolved spectre of the Russia/lessors dispute continues to hang over the market and both the direct and reinsurance markets will remain cautious until this is resolved. The year-end underwriting results for insurers, now impacted by a frequency of losses in December including Jeju Air, will also play a key part in what transpires and may influence future capacity and underwriting sentiment as we enter 2025.
With so much market uncertainty and the opportunity for clients and carriers to differentiate themselves, having the right broker has never been so critical. At Gallagher Re, we pride ourselves not only on our market expertise but on knowing our clients - delivering bespoke risk management strategies to meet unique needs. Our cutting-edge data & analytics capabilities underpin our transactional excellence and enable us to provide tailored advice and solutions to effectively manage risk and advance strategic goals.
At Gallagher Re, we aim to help our clients achieve their desired results over the short, medium, and long term. We wish all readers a successful renewal season and are here to explore the best solutions for you.
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