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Reinsurance prices fall at 1/1 renewal, rates near technical levels: JLT Re


Reinsurance price declines continued at the key January 1st 2017 renewals, albeit at a moderating rate, as rates in the global industry get closer to technical levels, below which profitability is eroded completely, according to broker JLT Re.

The broker said that “a degree of balance” was restored in global reinsurance markets at 1/1, with evidence of price stability becoming increasingly apparent.

The January renewal was not perhaps as orderly as seen in recent years though, with later completions seen across the market, perhaps suggesting a tougher negotiating environment in the reinsurance market as prices near the bottom of the cycle.

JLT Re’s main measure of global property catastrophe reinsurance pricing, its Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index, recorded a 5.7% fall during the January 2017 renewals, as rates continued to decline.

David Flandro, Global Head of Analytics at JLT Re, explained; “Figure 1 shows JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index fell by 5.7% at 1 January 2017. This compares to a decline of 8.2% at 1 January 2016, 11% in 2015 and 12% in 2014. Much of the moderation was driven by relatively stable US property-catastrophe renewals. More marked pricing declines were registered for international property-catastrophe business, but the magnitude of these reductions was less than last year’s.”

JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index

Figure 1: JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index

Lower pricing is one factor that has helped to moderate rate declines, as pricing nears the point at which traditional reinsurance underwriters can struggle to extract any margin. This has helped to slow the inflow of third-party capital as well, although ILS capital has continued to expand through the second-half of 2016 as the renewal approached.

“The moderating trend at 1 January 2017 is related to today’s historically low pricing levels,” Flandro continued. “Global property-catastrophe pricing is now 33% below 2013 levels and approaching the previous cyclical low of the late 1990s. It is becoming clearer that the scope for further price reductions is limited for some classes of business as rates near technical minimums, i.e. the point where expected returns on capital fall below costs of capital.”

Many reinsurance programmes have renewed at pricing levels near where they expired, according to JLT Re, however there is still pressure on some lines and programmes which experienced larger declines the broker reports.

Mike Reynolds, Global CEO at JLT Re, added; “Increased underwriting discipline was evident across non-catastrophe lines, which also exhibited moderating rate reductions at 1 January 2017. Rates for most casualty and healthcare classes were flat to moderately down. Specialty classes once again generally saw more substantial rate reductions. Nevertheless, rate declines in certain specialty lines saw moderations compared to last year.”

The challenging operating environment is beginning to have a clear impact on reinsurance companies, JLT Re says, as they “face the reality of deteriorating results and margin compression.”

Other factors that contributed to more reinsurance rate stability at the January 2017 renewals include more static levels of reinsurance capacity, as the market did not grow as fast as in previous years and third-party capital inflow slowed, alongside growing demand from cedents, increased loss experience in 2016, growing reserving volatility, and the changing macroeconomic environment, JLT Re says.

Read all of Artemis’ reinsurance renewals coverage here.

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