Slide continues at April reinsurance renewals

Slide continues at April reinsurance renewals

The April 1 renewal period saw prices staying soft, according to Willis Re, with the same slight declines on already low levels seen in January continuing, with little evidence of a turnaround.

"It was pretty much as expected, that is a continuation of what we saw at January 1,” said James Vickers, chairman of Willis Re International, speaking at Lloyd's today for an Insurance Institute of London lecture.

Price softening was “modest”, Vickers suggested, continuing the recent shallowing out of price drops at 2016’s renewals after steeper rate falls for several previous years.

“Nothing happened between January and April to warrant a change in that outlook,” he continued.

Reinsurance buying was, however, slightly up, Vickers suggested. “Globally, there was a slight uptick in the amount of capacity purchased,” he said.

For loss-free accounts of property catastrophe business, renewals in April showed slightly varying price deteriorations, according to Willis Re figures: nationwide US business renewed between flat and -7.5%; in India falls of between -5% and -10% were observed; Korea averaged a -10% drop; Japan earthquake fell between -5% and -7.5%; and Japan combined peril business was down by -5% to -7.5%.

The reinsurance broker saw growing evidence that many reinsurers were getting to the point where they were unwilling to grant further concessions, while many were making increasingly “client-centric” decisions.

Insurance linked securities (ILS) – including all forms of alternative reinsurance capital – stayed competitive, maintaining pressure on traditional property catastrophe reinsurers, Vickers said.

Willis Re estimates ILS of all stripes grew to some $75bn of capital by the end of last year, up from $70bn 12 months earlier.

The recent change to the UK’s Ogden rate – the level at which UK personal liability compensation payments are set for court judgements to follow – is having a significant effect within that country, Vickers noted.

“However, there is no cross over into international casualty markets,” said Vickers.

Ogden rather represented a “microcosm of the whole reserving issue”, he suggested, noting that several re/insurers had published varying estimates on how much they had reserved for UK motor and by a factor of how much this would need to be increased.

Reserve releases are increasingly critical to reinsurers' profits, accounting for the majority of their shareholders' return on equity, Willis Re has noted in its most recent report on the reinsurance sector, also out today.

"Profits continue to be highly reliant on reserve releases, which represented 49% of total profitability," said Vickers.

"The reality of these numbers is really starting to hit home. The reality behind the reported figures is that they are barely sustainable,” he said.

He suggested there is still a "disconnect" between companies' financial results and the operational figures being fed to senior management.

In response, reinsurers are starting to launch expense control plans, as well as seeking mergers and acquisitions and authorising increased share buybacks.

Vickers said saw little reason for change at upcoming June renewals, with further slight price drops anticipated from reinsurers.

“Why would it change? If nothing untoward happens in the next few weeks, why would the situation change?” he said.

Even if reinsurers are brought to a position where they take overall losses, he suggested any price rises would be tempered by continued oversupply of capital.

“Things would need to go quite badly wrong, in terms of major capital destruction and a loss of confidence for the capital still coming in,” Vickers added.

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