Valera: Why a softer reinsurance market is still a growth market

Aon Reinsurance Solutions’ CEO of International, Alfonso Valera, guested recently on the Voice of Insurance podcast, produced in association with AdvantageGo (now part of Sapiens).

The reinsurance market has turned. After a brief but sharp hard market, capital is back in record volumes, combined ratios sit below 90 and reinsurers are again chasing growth. What does that mean for cedants, brokers and the wider risk-transfer ecosystem?

Few people are better placed to answer than Valera. As CEO of International at the world’s largest reinsurance broker by revenue – overseeing every market outside the Americas – he offered host Mark Geoghegan a wide-ranging tour: from cedant appetites and the M&A pipeline to MGAs, AI, and why he sees more opportunity in a softening market than many of his peers.

A softer market, but still a growth market

The headline shift Valera describes is the speed at which conditions have changed. “24 to 25 was already a softening market and now clearly the last one was a soft market for all,” he said. He goes on to say that capital serving the reinsurance industry is at a record just under $800 billion and supply has run well ahead of demand.

Counter-intuitively, however, that does not worry him. Looking back over the past decade, Aon’s reinsurance business has grown more in soft markets than in hard ones, simply by selling more to clients and growing the pie.

The bigger story, Valera argues, is that the hard market did not just push prices up, it shifted retentions dramatically. “The balance of ceded to retain losses have shifted towards the cedants. They are retaining far more loss than they were in the past.” With reinsurer results now healthy, he expects cedants to push for more cover lower down the tower, more diverse structures and more facultative buying as the direct market also softens.

Closing the protection gap

If there is one theme Valera kept returning to, it is underinsurance. “Whenever there’s a loss, you talk about the insured loss, and then the reinsured loss, and then you talk about the uninsured loss, and that is massive,” he said. “If we can all collectively close that gap, that’s where the opportunity lies for everyone.”

He pointed to progress in Italy and Greece on compulsory nat-cat schemes, and to record cat bond and sidecar issuance as evidence that capital is finding new routes into the market even as traditional balance-sheet start-ups remain rare.

Facilitisation, MGAs and the next wave of M&A

Facilitisation, once controversial on the insurance side, has now firmly arrived in reinsurance, particularly in facultative. Aon’s proprietary facilities, Valera said, work across a cycle rather than as a hard- or soft-market play, offering reinsurers diversification and clients speed and certainty of execution.

On MGAs, he was bullish but selective. He says the space is massive. Aon has helped MGAs set up syndicates and carriers, but not all of them are that credible and broker resources are finite. On M&A, he expects more activity ahead: “There is going to be a wave of consolidation… M&A as a tool for growth, that’s the way people grow.”

Life, health and pensions is another priority. “Broker penetration there is very, very, very small”, he noted. And this is despite huge premium volumes. It’s an underserved market Aon is investing in heavily.

AI: enabler, not replacement

On AI, Valera was clear. The biggest opportunity, he believes, is unglamorous: ingesting data and freeing brokers to add value elsewhere. “Our industry is not good at talking to each other… AI will help that in a big, big way.”

But he pushed back firmly on the idea that AI threatens the broker model. “I can’t see how AI would replace our role in the value chain… The outcomes and the insights are not going to come from AI. Distribution is definitely not going to come from AI. And capital is not going to come from AI.”

Ultimately, he said, reinsurance remains a people business: social, relationship-driven, and unlikely to be replaced by a bot.

A people business, in a moment of change

For all the talk of softening rates, record capital and the next wave of consolidation, Valera’s underlying message is one of opportunity. The market is more competitive, but cedants have more to buy, brokers have more to advise on, and the protection gap remains the biggest prize of all. M&A will accelerate, MGAs will keep multiplying though not all will survive scrutiny, and AI will quietly do the heavy lifting on data while the human work of advisory, distribution and capital formation carries on much as it always has. For C-suite leaders across the London market, Bermuda and the US, the message is less about defending the last hard market and more about positioning for what a softer, deeper, better-connected market can unlock.

Listen to the full conversation with Alfonso Valera for a more indepth view.