Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Re/insurers can expect “much of the same” at January renewals: Wells Fargo


Absent any significant catastrophe events, insurers and reinsurers will see “much of the same” during the next 12 months, as continued pressures from alternative capital, excess traditional capacity, high competition and low losses, result in rate declines and a continuation of the buyers market we see today.

With the key January reinsurance renewal season just around the corner, insurance and reinsurance analysts’ and experts’ predictions for the coming year are starting to filter through and, Wells Fargo states that for 2016, it “expects much of the same.”

A key market trend of 2015 was the persistent flow of alternative reinsurance capital into the market, growing its share of the overall market capacity to approximately $68 to $70 billion.

“The growth of alternative capital, particularly in the form of catastrophe bonds and other collateral-backed vehicles, now accounts for a noteworthy portion of overall reinsurance capacity, and most primary retail market carriers are purchasing significantly less reinsurance,” said Wells Fargo.

The firm predicts that third-party reinsurance capital will continue to expand its share of the overall market moving forward, particularly in property catastrophe exposures, where entry is easier.

“Alternative capital, especially in catastrophic property, will continue to attract investors and impact traditional reinsurance market offerings. In addition to an alternative for insurance companies, we anticipate more corporate insureds utilizing alternative capital,” state Wells Fargo.

Prices declined across the majority of business lines during the January renewals in 2015, with most insureds feeling dips of medium to high single-digit to low-double digit decrease.

The abundance of capital available to insureds, broad coverage, and favourable terms and conditions during January renewal 2015 resulted in the buyer’s market that remained throughout the year.

Furthermore, the tough and competitive operating environment limited organic growth potential during 2015, and Wells Fargo feels that more consolidation is to come in the insurance and reinsurance industry. Industry M&A, notes Wells Fargo, will drive cost efficiencies, an increased product line, the ability to improve global footprints, and overall an increased market share.

What’s more, with the expectation that these conditions will continue and even intensify in 2016 and beyond, “we believe underwriting profitability will be sustained in spite of rate reductions and the industry will likely continue to attract new capital, resulting in the continuance of a buyer’s market,” advised Wells Fargo.

Wells Fargo continued; “With plenty of working capacity available, this competitive environment should continue into 2016 and for the foreseeable future.”

The firm does stress that catastrophe property pricing might be getting closer to a floor, and as a result it’s important that companies remain disciplined on their underwriting at January renewals 2016.

During the upcoming 1/1 renewal season, Wells Fargo expects the “property market to continue to realise reductions, generally ranging from 5% to 15% on average.”

The report highlights, but doesn’t state whether the firm agrees, that many in the sector believe event(s) totalling beyond $100 billion could be enough to shift the current “softness” of the market.

“Additionally, a sharp rise in interest rates may lure some of the alternative capital away from the insurance marketplace, potentially shrinking some of the available capacity.

“For 2016, barring any catastrophic events of significance, we expect the above trends to continue for a majority of industry classes and coverage lines. Rate decreases are expected in the mid to high single-digit range for most lines of insurance as new and existing capital is deployed into the property and casualty marketplace to compete for business,” concludes the firm.

Without any major losses, and with competition from alternative and traditional providers of reinsurance capacity persisting, albeit moderating somewhat in recent months, the expectation that January renewals in 2016 will be similar to last year isn’t too surprising.

It will be interesting to see just how relaxed terms and conditions become in some cases and how much of an impact the flood of alternative reinsurance capital continues to have on the overall market.

Read all our reinsurance renewals news and analysis here.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

Get a ticket soon to ensure you can attend. Secure your place at the event here!

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.