Aon’s Marcell warns reinsurers that client “relationships” are being tested by their 1.1 behaviour
The head of the industry’s largest reinsurance broker has arrived in London today with a stark warning that the behaviour of some reinsurers in the run-up to 1.1 is setting back client relationships with late quoting, mixed messaging and inconsistent changes to coverage terms.
Andy Marcell, the CEO of Aon’s reinsurance arm, is keen to point out that some markets are acting “phenomenal[ly]” but following a recent trip to Bermuda, he estimates that “at least 30 percent” of accounts are still not firm ordered.
He says while clients have been educated to expect much tougher terms, they should also expect clearly communicated renewal terms which make economic sense, and which reflect the relationship between cedant and reinsurer.
Speaking exclusively to The Insurer TV, Marcell said some clients are “shifting” their buying posture as they ask themselves: “What is the product that I’m buying? And what is its long-term value”?
Marcell says he – and clients – understand the determination of cat reinsurers to re-set after yet another bruising loss year, but he warns reinsurers that buyers will have more alternatives in the future, and they should remain mindful of client needs.
“You want to be in business in 2023/24/25 with a product the client wants to buy and [that] follows the fortunes which underpins a considerable portion of our reinsurance relationships.”
He continues: “[But this] seems to be getting tested to a degree that, I think, is maybe unhelpful for the reinsurers in the next few years.
“I think when the dust clears and they're able to evaluate what occurred on the first of January, other forms of capital will continue to flow back into the reinsurance market. And then clients will be looking more seriously at the relationships that they want to have,” he added.
In his interview with The Insurer TV – which can be watched in full by clicking the link above – Marcell says clients have responded to the tougher stance taken by reinsurers by updating structures to programs, including by boosting retentions.
That includes major reinsurance buyers such as Axa XL and Liberty who – this publication has separately revealed – has agreed to the scrapping of the first layers of their NA cat programs.
“The clients know that reinsurers want them to have greater retentions, so they've responded to that. The clients want to know that they need more to pay more rate, and they're willing to pay more rate, but the justification for some of those rates seems all over the map and there's very little in the way of technical backup to support those rates, in terms of what is adequate, and what is opportunistic,” he added.
While he would not be drawn on average rate increases, most commentary is coalescing around average risk-adjusted rate increases of 40-50 percent for US cat and 60 percent plus on a nominal basis. Retentions are also significantly up.
A substantial challenge, however, is changes to terms amidst a broad thrust by many reinsurers to move from all-risks coverage to named perils.
“We’re trying to put together huge amounts of limits for a vast array of clients, and they don’t want to have 35 different contracts, with different coverages and holes in it. We need to reach a landing, which is why we're pushing so hard,” he said.
He also expresses concern about the late workload that is being left with reinsurance underwriters with only a few working days until the new year.
“We have at Aon Re maybe 500 property cat accounts, the vast majority of which are placed at 1.1; particularly our EMEA business and our UK business. And you go and see some of the underwriters or the leaders of reinsurance entities and without naming names they have five underwriters, and they may have 200 submissions, they probably have more on their desk. And then everything has been left to the end.
He concludes by saying the issue is “resiliency and relevancy” – one that applies as much to insurers.
“Reinsurers are driving price and restricting coverage. Okay, we understand that to a degree, but there needs to be a product of the future, that the clients can rely upon, there needs to be consistency. And so, I think, that that's where we all need to work together.”
Aon is the industry’s largest reinsurance broker with revenues just shy of $2bn in 2021.
The Insurer will be producing more coverage from Aon’s Andy Marcell’s exclusive interview this week, but you can watch the full interview for more of his views on:
- The behaviour of reinsurers in the run up to the 1.1.2023 reinsurance renewal
- Further details on terms and conditions and finding the middle ground between new terms and price
- Rapidly growing ILW market
- How what is happening in the property cat environment is spilling over into non-property cat lines
- Other forms of capital flowing into the market in 2023