Willis Re’s James Vickers believes that reinsurers made “good progress” at an April renewal period that saw underwriting discipline and a continuation of the rate increases seen at 1/1.
Vickers, who is Chair of Willis Re International, recently spoke to Reinsurance News alongside the release of Willis Re’s 1st View report on the April renewals.
The report concluded that market pricing remained firm in virtually all classes and territories at April 1, despite there being no shortage of coverage or capacity.
“1/4 was pretty much a continuation of what happened at 1/1, which was a general firming of the market,” Vickers told Reinsurance News.
“Prices, by and large, went up rather than flat or down. The industry remains well-capitalized and disciplined. The fact that there’s a lot of capital isn’t leading to pricing pressures decreasing.”
Another factor for the April renewals, which mainly focused on the Japanese market, was that there weren’t any losses significant enough to affect reinsurers, following heavy losses in 2018 and 2019.
This was helped by the low level of COVID-19 claims in the Japanese re/insurance market, which helped to relieve pressure on earnings and calmed the debate around exclusions.
Negotiations over exclusionary language had been blamed for delays at the January renewal period, but Vickers noted that Japanese companies “watched closely” how these discussions played out, meaning issues about standard or amended clauses were largely resolved by 1/4.
The Japanese renewals also benefited from the prevailing attitude towards reinsurance in this market, Vickers added, due to the necessity of coverage, the long-term view of re/insurers, the relationship-oriented nature of business, and the disciplined approach of the primary markets.
“Japan is one of the large global peak territories. They are consistent buyers of catastrophe cover, and they buy large limits because they’re big companies and have big exposures. This makes them very well regarded and liked buyers in the reinsurance market,” Vickers explained.
“The rates in some of the more difficult areas, particularly in property commercial risk where results in recent years haven’t been so good, are beginning to increase. Japanese companies will follow the same approach as they have done in the past on underperforming lines and consistently increase prices over a couple of years to achieve acceptable levels.”
He concluded: “I think looking back at these renewals, reinsurers will be satisfied that they’ve made another step forward. Some might argue that they wanted more in terms of rate increases, but I think they’ll be pleased that good progress was made.”
Looking ahead to the mid-year renewals, Vickers was confident that the trends seen at January and April will continue to play out in largely the same way.
“It’s not easy to see why anything should be any different,” he told Reinsurance News. “The basic problems that the reinsurance industry is facing are low investment returns, COVID-19 reserving, reducing past year reserve releases, increased volatility, frequency, and severity of manmade and natural catastrophe, as well as social inflation.”
“It’s a question of the pace at which the reinsurance industry can address these. It’s not a capital problem, it’s all about underwriting discipline. At the moment, this is not an issue because reinsurers are being fairly disciplined.”
“To some extent, this sort of gradual firming leads to a more sustainable position. If you look at some of the other historically hard markets where there was a capital shortage, new capital rushed in and was quickly deployed. So the rapid increase of rates then collapsed very fast, because it was too steep too quick, and there was an inevitable overreaction.”