Excess capital, the stabilisation of 2017 catastrophe loss estimates and benign loss activity so far in 2018 are driving a ‘new normal’ in property catastrophe reinsurance pricing, underlined by disappointing June/July property catastrophe renewals, according to Willis Re.
The global reinsurance broker has released its latest 1st View renewals report, which highlights a challenging mid-year renewals season for global reinsurers as momentum for rate increases dissipated, and actually declined in some cases.
According to Willis Re, while the majority of loss-free Florida property accounts were flat, some saw rates decline by as much as -7.5%, which the broker attributes to heightened competition as a result of non-traditional players offering layers with reinstatements.
Outside of the property catastrophe space, reinsurance lines have seen varied results for the mid-year, and Willis Re explains that where the initial loss ratios have declined as a result of sequential years of rate reductions or increased loss activity, reinsurance pricing has firmed.
Ultimately, the reinsurance broker highlights excess capacity from both the traditional and alternative reinsurance markets, the stabilisation of 2017 natural catastrophe loss estimates, which it states typically remain below initial projections and which are often retained by primary insurers, and benign loss activity so far in 2018, as the three trends that drove the property catastrophe renewals.
Willis Re notes the emergence of a ‘new normal’ in property catastrophe reinsurance pricing as a result of the above trends, adding that carriers have started to react by either cutting costs or reviewing the profitability of every piece of business.
While this approach might well prove challenging for some, overall, Willis Re expects it to be beneficial, as it promotes discipline and sustainability.
“Traditional risk carriers face an intense imperative to respond to the new normal with an adjusted business model. Proactive carriers are applying far greater rigor to ensure the profitability of every line of business they accept. The diversity and top-line contribution of marginal lines no longer makes them acceptable if they cannot earn an adequate return,” said James Kent, Global Chief Executive Officer (CEO), Willis Re.
Despite the impacts of 2017 catastrophe events the reinsurance market appears to remain challenging and highly competitive, with rate increase momentum dissipating and even declining in some cases. It will be interesting to see how players react to market conditions through the remainder of 2018, especially if loss activity picks up through the Atlantic hurricane season.