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Rate rises persist as replenished capital supports mid-year renewals: Willis Re

1st July 2020 - Author: Luke Gallin

Rate inadequacy continued to drive measured rate adjustments in many lines and geographies at the June and July reinsurance renewals, while primarily players were able to secure sufficient reinsurance capacity, reports Willis Re, the reinsurance broking arm of Willis Towers Watson (WTW).

Reinsurance renewalsThe reinsurance broker reports that double-digit risk-adjusted reinsurance price increases were evident for loss hit catastrophe treaties and ranged from +10% to +20% for the programs of Australian and Latin American insurers, to as much as +35% in the Florida homeowner renewals.

While still prevalent, rate increases at the mid-year renewals were far less dramatic for loss-free catastrophe treaties with limited peak catastrophe exposure.

Willis Re’s latest 1st View renewals report also notes rate increases in the casualty arena, most notably in U.S. healthcare liability which saw increases by as much as +40%.

Following the significant impacts of the COVID-19 pandemic, Willis Re’s report underlines a remarkable recovery in investment markets allied with investors’ appetite to support additional capital and debt offerings, as well as reinsurers own prudent risk and cost management.

All of this, says Willis Re, has resulted in capital levels being only 5% lower than the end of December 2019, which compares to a 30% reduction at the end of March 2020.

In recent weeks, numerous re/insurers have raised capital through various avenues, something that has been viewed as largely positive by analysts. This includes the likes of Lancashire, RenRe, Beazley, and Hiscox.

James Kent, Global Chief Executive Officer (CEO) of Willis Re, commented: “The global reinsurance market was not capital-constrained during the recent renewals, but has shown a greater level of prudence with an increased focus on underwriting profitability.

“More persistent hardening is evident largely across the board, but reinsurers continue to exercise clear differentiation between clients, lines of business, and territories. The value of sustained relationships has once again been proved.”

The report also notes that collectively, reinsurance companies are realising that losses from the pandemic, which currently stand at around $7 billion, could well take numerous years to settle. And, at the same time, Willis Re says that reinsurers are coming to the realisation that pandemic losses on the asset and liability side of the balance sheet are highly correlated.

“As a result, investors have remained cautious and selective as they continue to withdraw capital from some ILS funds whilst favouring better performing funds and rated reinsurers,” says the broker.

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