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EY expects robust reinsurance renewal negotiations

14th December 2017 - Author: Luke Gallin

Reinsurance renewal negotiations are expected to be robust as brokers look to secure multi-year deals for their clients at attractive rates, while reinsurers are likely to resist and look to push rates up after years of declining prices and the impacts of catastrophe events in the second-half of 2017, according to Ernst & Young LLP (EY).

Reinsurance renewalsLooking ahead to 2018, EY’s Specialty Insurance Lead, Andy Worth, is anticipating a vigorous January 1st, 2018 renewals process, as brokers and reinsurers look to negotiate the most favourable terms in light of expected rate increases across the sector, particularly in loss-affected lines.

“The Reinsurance Treaty (reinsurance cover being purchased by primary insurers) renewal negotiations are likely to be robust – with brokers trying to negotiate 2-3 year deals at current rates, knowing they are attractive for their clients. Reinsurers are also likely to resist heavily by trying to push up rates,” says Worth.

The second-half of 2017 witnessed an extremely active and costly Atlantic hurricane season, with the insurance and reinsurance industry loss expected to be somewhere around $100 billion, with wildfire outbreaks in California during the fourth-quarter expected to take the industry-loss bill even higher.

Worth notes that in terms of catastrophe losses, the first-half of 2017 was fairly benign, but that the soft market environment continued to pressure results for companies, alongside reduced reserve releases.

“NCR (Net Combined Ratio) improved only slightly from 97.9% in 2016 to 96.9% (H1 2017). This was of course followed by the costliest Atlantic Hurricane season on record in H2 meaning it is likely to be a significant year of losses. Unlike 2005, where the considerable losses of Hurricane Katrina were, to some extent, offset by investment income, there will be no such cushioning lever in 2017 given the sustained low investment returns since the financial crisis,” says Worth.

In 2018, Worth expects the California wildfires, as well as the three major Q3 hurricanes to result in some “targeted price hardening, especially in North America Property.”

The specialty sector in 2018 will also be impacted by the UK’s insurance-linked securities (ILS) legislation, says Worth, with a number of industry players already creating ILS platforms to take advantage of any opportunity.

“2018 will also be the year when we see many carriers execute their Brexit Programmes to support readiness for March 2019,” says Worth.

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