Rate reductions were still available during the recent June and July 1 renewals although the extent of these declines has continued to show signs of softening, Willis Re has reported.
Much of this “softening of the softening” as it has been termed by some of the market can be attributed to capacity withdrawals from some carriers owing to the inadequacy of the terms. But, as the reinsurance broker noted, there continues to be considerable variation between classes of business as well as territory.
Indeed, an increase in attritional losses across various territories and classes is having some impact on pricing, with a bifurcation in rate movements between the lower level and higher layers of some programmes. This will cause some pricing movement, although the industry has only suffered one major catastrophe loss this year – that of the Fort McMurray wildfires in Canada.
“Capacity remains abundant and continues to overhang the market in virtually all classes and regions,” said John Cavanagh, Willis Re’s global chief executive.
“With no material impact from catastrophe loss activity now for the last few years, rating pressure persists… Any relief that pricing may be nearing the bottom of the cycle is counterbalanced by concern over how and when rates might start to increase, even modestly, on a wider basis. The alternative is a market that faces a number of years bumping along at current levels earning very modest returns.”
Although the June and July 1 renewals affect business around the world, of particular interest are the results of those contract negotiations that take place in Florida ahead of the start of the North Atlantic hurricane season.
According to Willis Re, the average year-on-year risk adjusted price change on overall reinsurance programmes varied from flat to -5%. In an indication that reinsurers are taking a tougher stance towards pricing, Willis Re saw pricing was higher for new and/or additional capacity that was bought compared with those programmes that were renewals. Furthermore, Willis Re also saw that pricing for was higher for newer, less well established buyers compared with those that had been in the market for a longer period.
In many instances, buyers were also looking to purchase more capacity. However, as ever demand varied based on individual circumstances driven by acquisitions, portfolio growth, budget and rating agency pressures.
Unlike in previous years, reinsurers were not so open to offering multi-year treaty deals, although there continues to be some pressure on improved terms and conditions from buyers.