Both insurers and reinsurers were more selective about who they did business with at the Jan. 1, 2020, reinsurance renewals, according to a new report from Aon PLC's reinsurance solutions division.

Roughly half the world's reinsurance renews at Jan. 1 each year, with a particular focus on European business.

In the Jan. 9 report, Aon said a theme of many renewals on the property side was that reinsurers were differentiating by client, affecting both price and capacity. The broker's early analysis showed that reinsurers were targeting some programs for growth and the addition of new lines more than others. It added that where reinsurers had declined or reduced participation on programs, many other reinsurers were willing to take their place.

Aon also said insurers "took a closer look" when choosing reinsurers at Jan. 1, 2020. Influences on outcomes included reinsurers' reliance on retrocession cover, their behavior after losses, and insurers' desire to spread risks more broadly around different reinsurers.

On the casualty side, Aon said outcomes varied widely depending on the experiences and exposures of the insurers buying the cover. It noted that demand for reinsurance in casualty remains "strong," and that reinsurance capacity is "abundant and diverse" in most casualty segments.

A big theme in the run-up to the renewals was the potential for deficient casualty insurance reserves, particularly for U.S. business, as noted by the U.K.'s Prudential Regulation Authority and Convex CEO Stephen Catlin. Aon said in its renewals report that the commercial liability reserving position is "likely deficient overall," although it pointed out that the position varies widely by insurer and class of business.

'Modest' capacity tightening

Although there was some reshuffling of reinsurance programs, Aon said "the clear majority" of deals were completed in an orderly fashion at Jan. 1, 2020. It said the rebalancing of participation on programs showed that capacity remains "more than adequate."

However, the broker is expecting "modest tightening" of capacity in 2020 as demand for reinsurance increases and reinsurers try to deal with the effects of higher retrocession costs, lower interest rates and greater reserving uncertainty on their profitability.

Aon added that in alternative reinsurance, where cover is backed by money from capital markets investors, the loss of investor confidence is likely to continue, "squeezing collateralized reinsurance and the proportional market." But it is expecting "significant levels of activity" in the catastrophe bond market because around $7 billion of coverage is due to mature in the first half of 2020.