’The reinsurance cost per car on the road has increased,’ says broker

Reinsurer behaviour towards the UK motor market was “mixed” for at the 1 January 2024 renewals, Aon has said.

The broking giant made the claim in its Reinsurance Market Dynamics report – published yesterday (3 January 2024) – where it also highlighted that the reinsurance cost per car on the road had increased.

In 2023, the ABI highlighted that the average cost of motor insurance in the UK hit a new record in the third quarter of 2023 as rates increased 29% year-on-year.

And consultancy Ernst and Young (EY) predicted that the UK motor insurance sector would achieve a net combined ratio of 108.5% for 2023, driven by the rising cost of vehicle repair and natural catastrophes.

Highlighting what pressures in the motor market meant for the reinsurance renewals at the start of 2024, Aon stated that while quota share structures have held steady on margin, buffers increased as reinsurers demand higher and variable interest credit.

“Reinsurer behaviour was mixed at 1/1, with some looking to grow at or below quoted terms, while others were more challenging, but willing to work towards solutions,” it added.

“Excess of loss reinsurance terms were unchanged and rates were significantly lower, albeit the reinsurance cost per car on the road has increased as the rate decreases in reinsurance were not as significant as the increases in original rates.”

Industry renewals 

Meanwhile, Aon stated that, on average, the 2024 renewals across the insurance sector “proceeded relatively smoothly”.

It highlighted that a rebound in profitability, rebuilding capital positions and greater availability of retrocession capacity encouraged many reinsurers to display increased appetites at the enhanced terms established in 2023.

However, it warned that uncertainty over climate change, inflation, litigation funding and geopolitical risk on ultimate loss costs were “keeping potential new investors on the sidelines”.

“Capital buffers had already been eroded by unrealised investment losses going into 2023 and many were carrying less reinsurance coverage principally in the form of higher retentions forced by reinsurers in 2023,” Aon added.

Despite this, the broker stated that reinsurers were actively trying to achieve their desired signings at 1/1 given the level of returns at current pricing.

It said: “Reinsurers were eager to improve their relationships with cedents and many strategically targeted key clients with whom to grow as they sought to secure broader diversification of their global reinsurance portfolio.”