Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Reinsurance rates flat to down at renewal, capital markets interest persists


Reinsurance rates and pricing were seen as being flat to down at the key January 2019 renewals, a disappointing result for many as the market had been hoping for some broader price increases than just on loss impacted programs.

January 1st reinsurance renewal calendar imageAnother largely flat reinsurance renewal is not what anyone had hoped for at the start of 2019, given the size of the catastrophe losses faced over the last two years.

Underwriters had been hoping for the market to show its resolve in pushing for broad rate rises at the key January reinsurance renewals, but this New Year wish has not been granted, according to the first report on the renewals from broker Willis Re.

The FT reports that overall across the reinsurance market contracts that renewed, the rate environment was flat to even a little down in some cases.

At the same time demand has increased, as some major insurers sought to enlarge their reinsurance programs. But demand at flat pricing will not increase margins for reinsurers, meaning the pressure of recent years remains firmly on them.

“Reinsurers would have hoped to build on the momentum that started in January last year. Some will be happy in terms of demand, but they’re not doing backflips in the boardroom,” James Vickers, Chairman of Willis Re International told the FT.

After the roughly $200 billion of insurance industry losses faced across only an 18 month period the fact this renewal has come out largely flat is just another example of the new normal of a flatter reinsurance market cycle.

Loss affected accounts have faced rate increases, including Californian insurers hit by the wildfires that have had to pay 20% or higher rate increases for their reinsurance renewals, Vickers said.

The major European programs that renewed came in largely flat to slightly down, we’re told, with the appetite of the big four reinsurers seemingly undiminished for writing these risks at rock bottom margins.

We’re also told that some ILS funds and collateralised reinsurance underwriters have pulled back even further from these programs, becoming increasingly selective on European risks that they feel are largely underpriced.

But some ILS sources said that they are happy with the renewals, feeling they have achieved better risk adjusted pricing on the whole across their portfolios, which does suggest no-loss return expectations may be a little higher for the more selective underwriters of risk.

However, the overall appetite of the capital markets and institutional investors in general to allocate capital to ILS strategies is also undiminished, Vickers said.

“There is no issue about the underlying interest of capital markets in insurance risk,” Vickers said.

But he did note the difficulty some ILS funds face after suffering such heavy losses over the last two years, as this poor performance means raising capital will be a challenge.

“We’ll see a bit of weeding out between the best performers and those who are less successful,” Vickers explained.

This natural pruning of the market is no bad thing, however it is important to note that just because an ILS investment strategy had two bad years in a row does not mean it is a bad strategy.

Over the longer-term investors continue to be in the black in the majority of ILS funds, even after the two steepest years of losses on record.

The renewals will have been a serious disappointment for some traditional underwriters that have been struggling for performance, such as some of the Lloyd’s players, as flatter rates means no additional margin for them, putting the pressure on them to find ways to become more efficient or to consolidate.

As a result of this the use of alternative capital from third-party investors is also likely to continue to rise among traditional reinsurers, although it may be too late for some to try to move in this direction now as it’s clear that time will be running out for any company that continues to experience dwindling shareholder returns.

Some ILS fund managers will also likely be disappointed with the way rates haven’t moved and this will also have held back some capital raising activities as well.

All eyes will now be on the Japanese reinsurance renewals in April and Florida and the U.S. in June and July, when the market will be hoping for more of a concerted effort to increase pricing more broadly than just for the loss hit insurers.

It will be interesting to see just how successful that effort can be.

Read more of our reinsurance renewal coverage here.

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.