Absent a major loss event, global reinsurance firms expect continued pressure on rates at mid-year renewals, although property line reductions were noted to slow at April 1st. But despite interest rates remaining low and competition high, firms underlined the potential for profitability in 2016.
The majority of global insurers and reinsurers have now reported their Q1 2016 results and, as expected, there was mention of continued pressure on rates across the majority of reinsurance business lines, as competition remains high and large losses benign.
Global reinsurance firm Munich Re noted continued pressure on pricing and terms and conditions at April renewals, but did highlight that the renewal season confirmed slowing in price declines.
The reinsurer noted that during April renewals it saw price changes of -1.5%, so an improvement from the -2.6% reductions witnessed at the same period last year, further supporting a deceleration in rate declines.
This was echoed by re/insurer Hiscox and Hannover Re, with the former stating that within its reinsurance division, Hiscox Re, pressure on property lines has remained so far in 2016, but that a slowdown of rate declines was evident.
While Hannover Re said, “Early indications of bottoming out in reinsurance prices could be detected, most notably in the U.S. market,” which ultimately saw the firm increase its premium volume in the segment.
Numerous industry analysts and experts have discussed the notable slowdown in reinsurance rate declines in recent months, but also stressed that it’s unlikely the softening landscape will abate anytime soon, suggesting further pressures in the coming months.
So it’s likely the slowdown on rate reductions is a reflection of increased underwriting discipline rather than a turn in the market, with firms walking away from unattractive pricing and seeking opportunities in other, potentially more profitable areas.
This was noted by Germany domiciled reinsurance giant Hannover Re, which said, “The competitive market conditions that still prevail in property and casualty reinsurance were further underlined by the treaty renewals as at 1 April.”
“In view of its selective underwriting policy and the company’s concentration on existing business, Hannover Re was able to preserve the good quality of its property and casualty reinsurance portfolio,” added Hannover Re.
Hannover Re also stressed that in 2016 it expects to make a good underwriting profit, again attributing this to its selective underwriting policy, which essentially sees it write business that meets its margin requirements, and also with the belief that catastrophe losses remain benign and don’t exceed budgets.
Global reinsurer Munich Re also stressed that absent any significant loss events disrupting the current reinsurance market landscape, it also expects profitability to remain above cost of capital, a focus that at the mid-year renewals will help the firm maintain its portfolio quality.
On its outlook for the July renewal season Munich Re said, “Capacity and competition expected to remain high unless major losses occur. Due to the relatively high nat cat share of ~20%, overall pricing trend will depend on nat cat prices.”
Interestingly, and promising for the market players Munich Re, Hannover Re and Hiscox noted opportunities at April renewals and that it expects further business opportunities in the coming months.
Munich Re increased its top-line substantially at April renewals due to several new business opportunities, while Hiscox said that it’s finding opportunities in non-catastrophe exposed lines such as casualty and specialty, with the most pressure being felt in property reinsurance.
It’s unsurprising that reinsurers are finding more opportunities outside of the heavily competitive catastrophe exposed lines, which continues to remain the focus of the expanding pool of alternative reinsurance capital.
However, it is expected that third-party capital will broaden its reach outside of property cat lines as modelling and investor sophistication continues to evolve and adapt to the changing risk landscape.
The general view from Hiscox, Munich Re, and Hannover Re is that profitability remains challenging but that opportunities do exist, client relationships and disciplined underwriting will likely be key to securing growth and profit.
However, all three stressed that profits are plausible so long as catastrophe losses remain in line with budgets, which, following earthquakes in Japan and the recent devastating wildfires in Canada, could easily creep above expectations should there be a landfalling hurricane or another major earthquake, for example.
But it does appear that reinsurance price declines are continuing to decelerate, which is likely in part due to increased underwriting discipline, knowing to walk away from certain lines and redeploying capacity into other lines, such as casualty and specialty.