Property and casualty markets brace for competitive renewals

Aon’s Tracy Hatlestad and Amanda Lyons on what to expect in the upcoming renewals season.

What trends do you see in the property and casualty markets as we approach renewals season?

Tracy Hatlestad: The property cat market is shaping up to be competitive for reinsurers. We're seeing conditions where rates can soften while still allowing reinsurers to hit their target returns on equity. This suggests a healthy market for both sides. In terms of the impact of Hurricane Helene, we don’t think it will materially change the trajectory of where we thought the property reinsurance market was headed prior to the event.

We’re also likely to see a resurgence in demand for frequency protection, a need that wasn’t met in 2024. Insurers will be looking for covers that provide this frequency protection in a way that's subscription-worthy, meaning it has broad market appeal. That’s crucial, because some creative ideas from reinsurers in 2024 didn't gain much traction due to their lack of broader market approval.

Amanda Lyons: Casualty renewals are going to be interesting, particularly against the backdrop of multiple quarters of adverse development during the soft market years. Reinsurers have anticipated this, and it's been somewhat priced in, but now we're seeing a huge focus on differentiation. Many clients made significant changes around 2019-2020, reducing limits and tightening terms, so we'll focus on highlighting those changes during renewals.

The other key point is the importance of broader trading relationships, especially as reinsurers are now more focused on casualty, which will mean they have to continue to build holistic partnerships with their clients in this renewal period.

What areas of product innovation are helping clients achieve their strategic goals?

AL: One frustration we've seen is reinsurers retreating from risk, which was especially evident in the 2023 property renewal. Clients felt they had been burdened with increased retentions and are now bearing the brunt of frequency-type losses. We’re now seeing a similar trend in casualty.

We are exploring ways to structure primary covers that are less broad than the traditional ones that often encompass various risks and leave reinsurers exposed to unanticipated claims. We're working on products that provide certainty around limits for specific emerging risks, like microplastics or climate litigation, although these are still in development. Ultimately, by focusing on the key challenges of the product offerings, we are helping (re)insurers to navigate volatility and shape better business decisions.

Are there any themes supporting conversations at Monte Carlo?

AL: The idea of reinsurers not running away from risk is a big talking point. In 2019, reinsurers pushed clients to reduce limits, which has had unintended consequences. Now, those shorter limits are getting exhausted faster, which we need to avoid repeating.

TH: Instead, we should focus on building partnerships. On the cat side, the market made progress in 2024 by reducing non-concurrent terms in some regions and meeting upwards of 10 percent additional demand. This year, we expect further movement in terms and conditions, but the conversation needs to evolve to consider how reinsurers support clients across all placements and help them to achieve profitable growth. Reinsurers that are retreating from placements that are most important to clients will see impacts on signings on other deals.

So how do you see clients achieving profitable growth this year and beyond?

AL: Clients are re-evaluating their portfolios, focusing on rate adequacy rather than just rate change. There's a lot of refining happening, especially in areas where latent exposures from the soft market have surfaced. On the casualty side, there's a push towards a more analytical approach to emerging risks, moving away from the 'kitchen sink' all-encompassing covers of the past. We're also seeing interest in legacy transactions as clients aim to segregate soft market exposures and start fresh with stronger portfolios.

TH: We’re seeing similar portfolio evaluation on the property side. These changes, coupled with rate increases, are altering the risk profiles that clients assume. One of our key roles is to utilise advanced data and analytics to bring clarity and confidence to their decision-making process.

Tracy Hatlestad is head of property for Aon’s Reinsurance Solutions, and Amanda Lyons is global product leader for Aon’s Reinsurance Solutions.