Pricing floor illusive at 1/1 – Willis Re - FREE

Pricing floor illusive at 1/1 – Willis Re - FREE

Reinsurer’s hopes for firming market pricing at renewals were dashed at 1/1, Willis Re’s John Cavanagh has claimed.

The reinsurance broker’s global chief executive said “hopeful forecasts for a “softening in the softening” at the January 2016 renewal season have proved illusory in all but a few cases”.

He claimed that signs of a price stabilisation at earlier June and July 2015 renewals had been premature, writing in his preamble to a broader Willis Re renewals report, available here.

Cavanagh (below) suggested that a rallying insurance linked securities (ILS) market had contributed to continued competition for rates among traditional reinsurers.

John Cavanagh“Buyers have yet again looked to their reinsurer partners for support in terms of reduced prices and broader coverage to help manage their portfolios as original rates have fallen across most markets and classes. On the other hand, ILS markets have largely taken a more disciplined approach to pricing, given their business models do not allow the same degree of flexibility through diversification as traditional reinsurers,” said the Willis Re CEO.

For a table summary of Willis Re’s analysis of pricing at 1/1, broken down geographically, see below.

Price variations geographically also highlighted the continued role of catastrophe bonds competing in the US market excess of loss catastrophe business, Cavanagh suggested.

“This trend has underpinned the difference in rate reductions between US property catastrophe excess of loss contracts – particularly on the higher layers – compared to those outside the US where the ILS markets have less penetration,” said Cavanagh.

Elsewhere, in specialty markets, Cavanagh pointed to additional “difficult renewal dynamics… leading to a prolongation of softening rates”, citing aviation and energy reinsurance lines.

“As reinsurers continue to diversify their portfolios, , particularly in US specialty classes, are growing strongly.

"These offer opportunities for reinsurers to access business that will support the build-out of their specialty incomes, although this comes at the expense of some traditional specialty insurers. Casualty markets have also not been able to offer reinsurers much relief,” he said.

A claims increase across a several non-motor classes has not yet hit pricing, he claimed.

“And despite the increased focus on risk quantification in casualty classes linked to downside risk and capital distress testing, the take-up rate of new products designed to address these issues remains muted. Without some additional external impetus, this is likely to remain the case,” said Cavanagh.

Underpinning these trends, according to Cavanagh, some larger companies continue to increase their retentions, despite signs that some cedants are capitalising on reduced prices to up their reinsurance covers.

Willis Re renewals 2016

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