Rates of price softening are expected to slow down in the coming year, as reinsurance and insurance supply remains stable but demand for coverage grows as prices drop, according to a Peel Hunt report.
Peel Hunt analysts quoted elevated loss activity in the second-half of 2016 as being likely to slow down further softening of market rates, explaining that although there is still a surplus of capital, these figures hadn’t significantly risen in 2016, but price reductions have resulted in increased demand for insurance and reinsurance cover.
According to Lloyd’s equity research conducted by Peel Hunt, estimated equity returns falling below the equity cost will make “sector returns more vulnerable to catastrophe and large man-made losses on a risk adjusted basis.
“There is less loss absorption available through the P&L unless insurers are able to offset underwriting margin pressure through rising investment income should interest rates continue to increase.”
Hopes that 2016 would bring clear signs of a stabilising market were dashed as analysts reported a higher than expected rate decline across Europe and Asia at the January reinsurance renewals, aggregating to 6% according to JLT Re, and down low to mid-single digits according to Willis Re.
“Whilst we expected the market would remain soft, our hopes for clear signs of a stabilizing market have not materialized so far,” Peel Hunt commented.
In the past four years reinsurance rates have declined by a third, but still remain above the 20 percent 1999 trough.
In the U.S. market rates declined at a slower pace compared with the international reinsurance market, but with the important U.S. renewals being six months off, these figures could still be subject to change.