Re/insurers see rates down about 10% at June 1st renewal: KBW

by Artemis on May 11, 2015

Insurance and reinsurance companies in Bermuda expect that June 1st renewal rates will be down around 10% year-on-year, but many also suggest that stabilisation in pricing is becoming evident, according to analysts at Keefe, Bruyette & Woods.

KBW’s analysts visited a number of leading insurance and reinsurance firms during a trip to Bermuda last week and found that anecdotal evidence suggests that rate decreases on mid-year renewals now seem to be decelerating.

KBW views the fact that price declines are slowing as a positive for the reinsurance sector, against the backdrop of a broad perception that “insatiable and disruptive” alternative capital is here to stay.

The majority of insurers and reinsurers still expect that the June 1st 6/1 reinsurance renewals will see price declines in the region of 10% year-on-year, but around half of those companies that KBW analysts met with see some stabilisation emerging in the rate environment.

The main piece of evidence to support an emerging stabilisation is the fact that a number of renewal reinsurance contracts have had to go back to cedants without being completely filled at the initial terms and pricing.

This has been reported quite widely in the run up to the mid-year renewals, with some suggesting that brokers have been too aggressive in expecting continued rate decreases and that the market would not support many accounts where decreases are 10% or higher, year-on-year.

KBW notes that this also suggests that reinsurers are differing in their return requirements or underwriting discipline, as some accounts have been getting completed while others haven’t. Cost-of-capital perhaps coming into play at this renewal.

KBW said that Validus Re reported that the resistance from the marketplace has meant that some accounts, where a small decline in rate was expected, have been coming back to the market almost flat, year-on-year.

That will be encouraging for reinsurers who have been holding back, or pulling back, on underwriting due to anticipated price declines. Any stability in rates will be well received at this point in the market cycle.

Several reinsurance firms have reported tolerating rate declines, likely in order to win business, or have been pairing them with alternative solutions, according to KBW. Pairing traditional reinsurance with an alternative solution will allow reinsurers to lower the overall cost-of-capital, while still winning business by bowing to pricing pressures.

Additionally, new demand for reinsurance capacity has been cited as a levelling factor at the upcoming renewals, with many citing the Florida Hurricane Catastrophe Fund’s (FHCF) purchase as a driver of rate stability in Florida.

However the reality is that the demand from the FHCF, alongside growing demand from Florida start-up insurers, will not be sufficient to soak up the excess reinsurance capacity and capital that is currently available.

“Pricing trends aren’t positive,” noted KBW, “But price decreases may be slowing down.”

If prices are indeed stabilising the next question will be how (if) rates react after a loss event. With hurricane season starting already, as evidenced by the very early tropical storm Ana, all eyes will once again be on Florida, the U.S. east and gulf coasts.

Subscribe for free and receive weekly Artemis email updates

Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.

← Older Article

Newer Article →