Jan renewals set tone for demanding 2017 in reinsurance – Willis Re


January 2017 reinsurance renewals have set the tone for another demanding year for the industry, as further price declines and rising combined ratios look set to erode even more profit, meaning that luck will play a role in reinsurers prospects over the coming months, according to Willis Re.

January 1st reinsurance renewal calendar imageReinsurance broker Willis Re notes that rates are still “struggling to stabilise” in the latest edition of its 1st View renewals report, published today.

The insurance-linked securities (ILS) market and alternative reinsurance capital continues to play a major role in market dynamics, with a greater number of re/insurers now leveraging third-party capital within their businesses and the resurgence of margin compression in catastrophe bonds and collateralized reinsurance towards year-end as ILS hiked its price competitiveness once again.

Willis Re’s report explains that some reinsurers are not willing to be as flexible as in prior year renewals, but that despite the talk of stability coming many buyers have been able to find further price concessions at January 2017.

John Cavanagh, Global CEO of Willis Re, explained; “The ability to produce yet another profitable year, somewhat against the underlying pricing models, has meant that the threshold to force a market pricing stabilization has not yet been reached.

“While reinsurers are still able to report profitable results, despite the underlying issues they face, the situation for many primary companies is much tougher.

“Rising combined ratios in many markets, driven by competition both from existing peers as well as from new style competitors utilizing innovative low cost distribution and cost models, is a growing concern.”

Reinsurance price declines are said to have been sizable on international business, but more muted in the United States which Willis Re says is driven by the more capital intensive nature of some U.S. classes and the fact that steep price declines have been experienced there over numerous renewals.

In the U.S. rates on loss free accounts have fallen by up to -5%, while in the UK, Australia and Korea declines of up to -10% have been seen, China has seen rates fall up to -20%, and Latin America up to -15%.

The general trend in reinsurance pricing, particularly again in property catastrophe risks, is downward. The rate of decline has slowed, some what, but now rates in some of the international regions are reaching levels where once again only the large, diversified reinsurers will be happy picking up some programs.

Willis Re notes that there has been a “fragmentation” of pricing trends, by territory, client and class of business, with “superficially inconsistent underwriting at a market level” now evident in reinsurance.

However regulatory clarity about the treatment of reinsurance solutions is also helping to boost uptake of both life and non-life reinsurance in some areas, the broker notes.

It looks like the reinsurance sector needs to slip into broad unprofitability before true pricing stabilisation will be found. The question is whether the efforts and initiatives to increase the efficiency of underwriting capital, through the use of third-party capital, ILS structures and also insurance technology (insurtech) will keep the pressure on for longer.

That would suggest that those traditional reinsurers who do not embrace trends towards enhancing capital efficiency and effectiveness could find themselves more rapidly marginalised, as a lower priced reinsurance market becomes the norm.

The outlook for reinsurers has not improved, despite another profitable year behind them. Those companies which have yet to embrace the evolution of reinsurance and risk transfer markets may find this year particularly difficult to navigate.

“With the January 1 renewal season setting the tone for 2017, reinsurers can only look forward to another demanding year, where luck will play an even larger role in determining their final results,” Cavanagh predicted.

Read all of Artemis’ coverage of reinsurance renewals here.

Join Artemis in New York on February 3rd 2017 for ILS NYC.
Artemis ILS NYC 2017

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.