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Persistent reinsurance market headwinds impacting all territories

18th July 2017 - Author: Luke Gallin

Global property reinsurance rates continued to decline throughout most territories at the mid-year renewals season, driven by a lack of catastrophe losses, excess capacity and ongoing market pressures, according to reinsurance broker Willis Re.

HeadwindsIn the UK and the U.S. excess capacity, from both traditional and alternative sources, continues to combine with the benign loss landscape, adding pressure to an already stressed marketplace and driving continued market softening at mid-year renewals, says Willis Re.

In the U.S., signs of slowed rate reductions did occur at April 1st, 2017, but the June and July renewals saw increased competition and as a result witnessed some steeper-than-expected rate declines. In both the U.S. and the UK insurance-linked securities (ILS), or alternative reinsurance capital remains plentiful, which in turn is fuelling competition for business, especially in the property catastrophe space.

In Australia, Willis Re notes continued market softening on mid-upper layers and bottom-end loss free layers, with reinsurer appetite for low level cat layers and aggregate covers being limited, which is pressuring pricing in this area of the market. Some reinsurers are now pulling back from unprofitable lines, with others looking to increase capacity, with the overall impact being that capacity remains in abundance, says Willis Re.

The Caribbean also experienced downward pressure on original property rates, which is thinning reinsurance margins for proportional business. At the same time, reinsurance companies in the region are considering pulling back on regions with the greatest competition, such as Jamaica.

In China the story at mid-year was somewhat different from that seen in other regions, as reinsurers are becoming more concerned with their own results and look to avoid lower layers with high frequency of risk. Some loss affected programs were impacted by price increases, which varied dependent on loss history, explains Willis Re.

In some instances price increases were perceived to be insufficient, and led some reinsurers to walk away, a trend that appears to be more common place across a number of territories at the recent renewals.

Substantial overcapacity for business in the Latin American marketplace continues to drive the soft market, exacerbated by an increase in capacity for pro rota, explains Willis Re. The broker notes the market is still difficult to enter for certain programs, and buyers of protection are showing signs of preference for “cross-class support” from reinsurance firms.

In the Middle East, however, pricing appears to have reached the bottom of the cycle, says Willis Re, with “significant pushback from reinsurers.” Companies have increased their focus on the underlying rate adequacy of the portfolio, which is being benchmarked against a growing base of reinsurers that are pushing retentions up, and commissions down.

“The Abu Dhabi National Oil Company loss has been a driver for an increase in pricing within the regional retro renewals,” says Willis Re, adding; “With reinsurers willing to walk away from distressed business, discipline among the larger players is holding.”

Pricing in the reinsurance market clearly remains under significant pressure across many business lines and most territories, with excess capacity seemingly impacting numerous regions.

While rates in China reported increases at mid-year renewals and it appears pricing in the Middle East may have reached the bottom, overall, the global reinsurance industry remains challenging, with many of the headwinds expected to persist through 2017 and into 2018.

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