Reinsurance News

January renewals highlight reinsurance “pricing gap”: Willis Re

2nd January 2019 - Author: Matt Sheehan

The January 2019 reinsurance renewals have highlighted a “pricing gap” between cedants with peak peril exposure or poor loss records and other accounts, according to a new report from broker Willis Re.

Reinsurance renewalsThe company earlier told the Financial Times that reinsurance rate increases did not materialise at the 1 January renewals, resulting in an overall flat to slightly down rate environment.

However, Willis Re’s latest 1st View renewals report suggests that loss impacted accounts and cedants of lesser quality have seen upward pricing across a number of lines, particularly in the property casualty space.

Analysts claimed that reinsurers have generally placed more emphasis on the quality of client counterparties, and cedants with good loss records and a disciplined, early renewal process achieved the most significant rate reductions.

The broker’s comments also reflect recent analysis from JLT Re, who noted that reinsurance pricing defied the expectations of post-loss firming for a second consecutive year at the latest renewals.

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Willis Re added that the absence of a major pricing uptick will prove challenging for the insurance-linked securities (ILS) market, which experienced significant loss erosion in 2017 and 2018.

Long-standing ILS funds with consistent management teams and flexible fronting agreements are likely to experience the most success, although some funds may struggle to attract new investors.

Primary insurance lines saw significantly larger rate increases than treaty reinsurance business, partly due to a number of business model adjustments, such as the changes within the Lloyd’s market.

Willis Re argued that reinsurers have benefited from increases in premium ceded by large carriers, notably through large new pro rata cessions where terms have slightly tilted in reinsurers’ favour.

At the same time, the broker said that major reinsurers’ strength and client-centric flexibility remain key to large cedants’ goal of dampening earnings volatility.

“In the immediate aftermath of the 2017 catastrophe losses, many observers felt the measured reaction of the reinsurance market was a clear sign of a changing structure and maturity,” said James Kent, Global Chief Executive Officer (CEO) of Willis Re. “Others more cautiously suggested time was needed to properly assess the impact of 2017 events.”

“In the wake of the high loss activity during the second half of 2018, early renewal negotiations have proved prudent, while pricing in the primary market has given reinsurers some cause for optimism in light of the increased pro rata cessions from clients,” he continued.

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