Reinsurance a 'robust opportunity' for Aon: Andersen

Aon expects this year to generate “robust opportunity” for its reinsurance business, the broker’s president, Eric Andersen, has said.

Speaking to analysts, Andersen said reinsurance continues to be a very strong performer for the company, adding the January 1 season had been “a little different to years past”.

Aon's Reinsurance Solutions unit reported total revenue rose 27% in the fourth quarter of 2022, to $281m, reflecting strong growth in treaty, driven by strong retention and continued net new business generation. The division also benefitted from strong growth in facultative placements and double-digit growth in capital market transactions.

“When I think of what’s going to happen over the next 12 months, we’ll continue to see a very robust opportunity for the team. They’re spending a lot of time with data analytics, better insight, to help our primary clients figure out their positioning,” Andersen said.

“Through the 1/1 renewals, more risk and more volatility were pushed to the primary insurers. The outcome of that for them will either be risk appetite – and they’ll have to be very disciplined on the risk they assume in the property space, in particular – or they’ll use other methods, like facultative reinsurance. They’ll probably do selective buying throughout the year.”

On specific lines, Andersen said property is “getting a lot of attention” and continues to be challenging for Aon’s primary clients. Others, including casualty, cyber and financial products, are “more stable”, he added.

“We’re a good three-and-a-half to four years into the market cycle, and I think those products are coming more to an equilibrium,” he said.

'Through the 1/1 renewals, more risk and more volatility were pushed to the primary insurers. The outcome of that for them will either be risk appetite – and they’ll have to be very disciplined on the risk they assume in the property space, in particular – or they’ll use other methods, like facultative reinsurance'

^{Eric Andersen, Aon}

Asked whether Aon expects to see the challenging environment, especially in property reinsurance, to continue into mid-year renewals, Andersen said not a lot of new capacity had entered the marketplace.

“There’s certainly a lot of whispers and discussion about whether there’s opportunity for additional capacity to enter,” he said. “I would say, as we go into the April 1 property renewals, which are dominated by Japan, and then into June 1, which is dominated by Florida, you would have to think that those market dynamics will continue.”

On whether Aon saw prices softening in commercial lines, Andersen said: “We like to say, there’s a million little markets out there, depending on each individual client, the business they’re in and the types of exposures being covered.”

He continued: “But on a macro basis, certainly property continues to be the firmest as the primary carriers deal with the effects of the higher retained risk that they were traditionally passing on to reinsurers. Whereas with the casualty lines, general liability, cyber, financial lines, D&O [directors' and officers'], professional, that type of thing, we're definitely seeing a stabilising of the market, as more capital has come into those areas, and clients are being given more choices in what they're doing.”

Aon’s reinsurance and corporate broking units – Reinsurance Solutions and Commercial Risk Solutions – booked 9% and 4% organic growth in the quarter respectively.

Aon chief executive, Greg Case, said the “modest positive impact” of the market on these two divisions was “not simply a function of price per se, but also insured values over time”.

“For us, it really is about the value we deliver for clients. We benefit from that because they get benefit,” he said. “In an environment with greater risk, the opportunity to provide greater value is real and meaningful.”

Andersen added one of the benefits of being a “fully transparent broker” is that “we don’t really care whether it’s a commission or whether it’s a fee”. What drives Aon, is “being paid fairly” for the value it provides its clients.

Christa Davies, Aon’s chief financial officer, said that Aon generated $3bn in free cashflow in 2022, which she said had contributed to its track record, since 2010, of growing free cashflow at a 13% compound annual growth rate.

“We continue to expect double-digit free cashflow growth for the full year and over the long term, driven by operating income growth and working capital improvement,” she said.