Recent takeover deals may affect catastrophe reinsurance renewals in the Australian market, according to Aon.

“Several pending acquisitions ... would likely reduce property catastrophe premium from the market as the parties review reinsurance strategies upon completion,” the global broker says in a mid-year update. “Further consolidation in the market is likely to temper demand for reinsurance and drive increased competition at future renewals.”

Allianz and IAG have received regulatory clearance to buy RAA Insurance for $642 million and RACQ Insurance for $855 million respectively.

The competition watchdog is still reviewing IAG’s $1.35 billion deal to acquire RAC.

Another shift looms if the prudential regulator changes requirements around alternative reinsurance options such as catastrophe bonds.

“If implemented, the proposed changes to capital requirements may make catastrophe bonds and parametric solutions more attractive to insurers.”

Australia and New Zealand are an “important and attractive” market for property catastrophe reinsurers, Aon says. About 80% of renewals from the two markets take place mid-year.

At this mid-year renewals, Aon says, “capacity was more than adequate to meet demand, with property catastrophe placements achieving rate reductions, along with stable coverage, terms and conditions. While increasingly competitive, the reinsurance market remained disciplined. Terms and conditions were broadly unchanged while retention levels remained stable.”

There was growing interest in expanding reinsurance protection, but Aon says most insurers “continued to prioritise affordability and managing earnings over additional reinsurance purchasing”.

Ex-Tropical Cyclone Alfred, the only significant catastrophe loss event for Australia over the past 12 months, was neutralised by the Commonwealth-backed cyclone reinsurance pool.

Aon says the pool is a success. “[It] performed as intended in what was a unique cyclone event.”

See the report here.