Rating model, regulations to up demand: Aon

Reinsurance brokerage Aon Benfield, in a recent Reinsurance Market Outlook report, underlines the potential for increased demand for reinsurance coverage in 2017, in response to regulatory changes, and the amended A.M. Best stochastic-based BCAR model.

“Under the amended stochastic-based BCAR model, catastrophe reinsurance is more accretive for 80 percent of companies as compared to the current BCAR model framework. One main reason is that companies will now receive quantitative benefit from buying reinsurance above the 100 year wind return period up to the 200 or 250 year all perils return period,” states the report.

Amendments to the A.M. Best BCAR model remain under review and the public comment period runs until March 1, 2017. The Aon Benfield report discusses the changes to the model in some detail, but the message from the broker is that it could result in a slight uptick in reinsurance demand, while reducing the cost of reinsurance capital.

As well as changes to rating agency criteria, Aon Benfield highlights regulatory developments across all regions as a stimulus for heightened reinsurance demand. The broker states that regulators continue to raise capital requirements by increasing minimum capital standards, advancing capital models, reevaluating catastrophe risk exposure, and including asset risk management processes in its reviews.

Regulatory developments noted in the Aon Benfield report include developments with the Own Risk Solvency Assessment (ORSA) legislations in North America, the US risk based capital (RBC) catastrophe risk charge (which the NAIC is reportedly close to implementing), Solvency II in Europe, and regulatory advances in parts of Asia and Latin America.