Following a period of limited availability, aggregate property reinsurance protection is experiencing a resurgence in the market. Reinsurance broker Gallagher Re highlights this development, noting a shift from the complete disappearance of whole-account property aggregate reinsurance at earnings-protection levels since 2020. Reinsurers are now increasingly willing to provide aggregate coverage, albeit with higher attachment points, reflecting an evolution in market conditions.
Previously, aggregate coverage sometimes functioned as a working layer, allowing insurers to frequently recover losses from catastrophic events like wildfires and severe convective storms. However, inadequate modeling for these secondary perils, unlike windstorms and earthquakes, complicated reinsurers' ability to accurately anticipate losses under aggregate treaties. Consequently, many insurers abandoned aggregate coverage in favor of all-perils occurrence treaties, leading to increased retentions. Despite this, the demand for aggregate protection persisted, particularly in Europe where it served as the sole natural catastrophe reinsurance for some insurers, and in the United States, where it filled gaps in conventional excess-of-loss protection, primarily for peak perils like hurricanes and earthquakes after 2020.
The current re-emergence is largely attributed to an expansion in the reinsurance market's capacity, fueled by two years of exceptional underwriting profits. This surplus capital, estimated to grow significantly by 2025, has prompted reinsurers to reintroduce aggregate offerings as a strategic move to deploy capital and differentiate themselves in a softening property catastrophe market. Gallagher Re anticipates that well-structured aggregate protections will be reinstated for the upcoming renewal season, with new buyers recognizing their value. However, this return is characterized by caution, with elevated attachment points and a greater need for robust, data-backed rationales and clearer modeling of expected loss potential to support purchases. The market now favors structures where cedants bear a larger share of losses, making aggregate protection economically viable for frequencies of losses higher than those typically covered in the past, especially in the US and Europe.
The return of aggregate reinsurance signifies a dynamic adjustment within the insurance industry, demonstrating its capacity to adapt to changing risk landscapes and economic pressures. This evolution towards more carefully structured and data-driven reinsurance solutions not only provides crucial capital protection for cedants but also fosters long-term, profitable relationships for reinsurers. It underscores a collective commitment to enhancing resilience and stability in the face of increasingly complex and frequent catastrophic events, ultimately strengthening the broader financial system.
