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Lloyd’s cedents make the most of soft reinsurance market: RBC Capital Markets

18th January 2017 - Author: Luke Gallin

As expected, the London insurance and reinsurance marketplace saw rates fall further at the key January 1st 2017 renewals, but cedents were able to take advantage of current soft reinsurance market conditions, resulting in increased reinsurance demand, says RBC Capital Markets.

A number of insurance and reinsurance industry observers and analysts have now commented on the recent, key 1/1 2017 renewal season, with the general message being that as expected, pricing continued to fall across the sector, albeit at a slower rate than seen previously.

Apart from the decline in pricing, some market commentary noted an increased demand for reinsurance protection during the period, something that RBC Capital Markets says was evident following its discussions with the specialist Lloyd’s of London re/insurance market.

Overall, the London market saw pricing fall by 5%, with international property catastrophe lines down by 5% – 10%, and 0% – 5% in the U.S.

“With the remaining listed Lloyd’s insurers being net reinsurance purchasers, the consensus was that they have used the soft reinsurance market in order to purchase slightly more reinsurance protection,” said RBC Capital Markets.

An increased demand for reinsurance protection as a result of current market conditions was also noted by reinsurance broker Aon Benfield recently, and now RBC Capital Markets has highlighted a continuation of the buyers market environment in the London marketplace.

The abundance of traditional and alternative reinsurance capital in the global marketplace, coupled with a lack of large losses and an apparent supply/demand imbalance, has resulted in an overcapitalised industry and, reinsurance buyers have been able to take advantage of the availability of the competitive glut of efficient reinsurance capacity, at recent renewals.

This trend has been evident throughout the softening reinsurance cycle, with cedents looking to secure greater reinsurance coverage at a cheaper price and under more favourable terms and conditions (T&C), while reinsurers attempt to put an end to further rate declines.

Any uptick in demand for reinsurance will be welcomed news for industry players, however, with so much capacity both in the space and reportedly sat on the sidelines waiting to come in, it’s expected that a truly substantial increase in reinsurance demand is needed, along with heightened losses, for this to have any meaningful impact on pricing in the London market, and beyond.

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