Reinsurance renewal pricing was seen as “broadly flat” at the April 1st contract negotiations, as the reinsurance market continued to be affected by excess levels of capital and pricing as a result has disappointed reinsurers, according to broker Willis Re.
In its latest reinsurance renewals report, broker Willis Re explains that loss free programs continued to renew at flat levels at April 1st 2018, following the trend set in January.
James Kent, Global CEO at Willis Re, explained, “The pricing environment for the April renewals has closely mirrored that of the 1 January placements, with pricing dampened by the continued impact of plentiful capacity from both traditional and ILS markets, and with the latter’s impact most apparent on property catastrophe pricing.”
Helping to boost capital in the reinsurance sector has been the excess levels still held at reinsurers, despite the major losses of 2017, the rapid reloading of the insurance-linked securities (ILS) sector, and also the renewed interest in reinsurance shown by primary companies.
Kent commented, “M&A in the sector, driven by large primary insurers returning to the reinsurance space, has also helped to keep capital plentiful, meaning that it remains a buyer’s market.”
Willis Re calls this a “dynamic change” to M&A activity in the sector, as large primary carriers respond to disruption in their market segments to renew their focus on reinsurance and commercial business.
The broker cites disruptive competition in personal lines business and profitability challenges in life insurance as the key drivers here.
But positives are also seen for reinsurers, with re/insurers continuing to raise the importance of reinsurance within their capital stacks.
Companies continue to analyse the impact of reinsurance buying, as a tool to support their earnings and for efficient capital management, resulting in the value of reinsurance being seen as higher than it has been in recent years, Willis Re explained.
That combined with some modest increases in reinsurance purchasing are seen as positive trends by the broker, boding well for those reinsurers that have the platforms and financial flexibility to sustain the current rate levels, in the knowledge that capital levels likely mean pressure will return on pricing within the next year.
“Reinsurers can take some solace from the fact that the annual price declines of recent years have abated. We are also seeing a pick-up in demand as a result of exposure growth, plus an increase in buying activity, most noticeably from some large global clients,” Kent said.
However, Willis Re notes that the inability to secure better pricing has been “disappointing for reinsurers looking to achieve real rate increase” although many managed to increase their premiums written, as higher exposures ceded fed through.
Japan, where a significant proportion of the markets reinsurance treaties were up for renewal in April, saw largely flat pricing.
Even in the United States, where the greatest losses were suffered in 2017, the rate environment at April 1st was largely single-digit increases even for the loss affected accounts, while some areas of that market were flat as well.
The Caribbean saw some more meaningful reinsurance rate increases, with loss affected accounts jumping 20% to as much as 35%, on the back of the major hurricane losses.
Willis Re reports that the non-marine retrocession market was much more stable in April, as the impacts of the major catastrophe losses are becoming clearer and so capacity is able to move more freely, with price ranges now narrower than seen in January.
Also there is an abundance of capacity available in retrocession markets, helped by the capital markets and ILS funds.
On the results side, Willis Re notes what it calls an “increasingly worrying trend” as virtually all non-natural catastrophe lines of business are seeing deteriorating results and reserve releases have been shrinking.
“While long predicted, the impact of this deterioration is now compelling virtually all managers to take decisive action. This is evident in many reinsurers and specialty carriers stepping up their efforts to reshape their portfolios, exiting unprofitable lines of business and implementing cost-saving programs,” Kent explained.
Looking ahead to the rest of the year, Kent’s message is not encouraging for reinsurers.
“Any hopes reinsurers held for meaningful real rate increases to help offset difficult 2017 results have been dashed,” he said. “Now, a slower upward trend across different lines of business is what observers are stating as the more likely trajectory, particularly if loss ratios on the underlying business continue to deteriorate.”
