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Signs of discipline despite soft reinsurance market: Aspen Re CUO


Discussing the state of the reinsurance market at the key 1st January 2016 renewals, Emil Issavi, President and CUO of Aspen Re, said that there were signs that the market has maintained some discipline, despite soft pricing and continued pressure from excess capital.

Speaking during a conference call held by analysts, where the January 2016 reinsurance renewals were discussed, Issavi noted that the industry continues to be pressured by excess capital.

“The pricing challenges created by this excess capital continued during January 1 renewals, although the impact differed by line of business and geography,” Issavi explained.

He went on to say that while price decreases were noticeably slowing, in some lines of business, more generally “pricing in many areas of business was disappointing.”

At the same time, Issavi said, terms and conditions on new reinsurance business underwritten “generally remained reasonably stable”, which he said helps to mitigate some of the effects of continued rate declines.

He also noted that the trend for cedents to consolidate reinsurer panels continued to be evident in January, with many electing to work with reinsurers deemed “capable of delivering a broad range of products with local distribution reach.”

So scale remains important, particularly for traditional reinsurers seeking to get their renewal signings in order to put their capacity to work.

Issavi also noted the trend witnessed by the major reinsurance brokers, that price declines held up best in the U.S. market, compared to international regions seen as diversifiers.

“In general, relative pricing for most lines held better in the U.S. vs. International. There were even positive movements in loss affected portfolios,” he said.

This is a sign of market discipline he explained, adding; “These are signs of a market that has maintained some discipline despite the soft conditions.”

On the general state of the reinsurance market renewal conditions he noted; “Original underlying rates generally remained more stable allowing reinsurers to benefit when participating on a pro-rata basis. In these cases, the commissions increased on better programs but the industry showed discipline and stability compared to  prior soft markets. January 1 renewals also saw greater requests for multi-year deals, potentially signaling the bottom of the market for certain lines.”

As expected, he noted, the reinsurance market continued to witness pressure on pricing in January, but the terms signed and buying habits in general did not change significantly. He noted that; “Although there was broad pressure on most lines of business there was little that occurred outside of our [Aspen Re’s] expectations.”

Commentary from a reinsurer is a useful source of insight, which combined with the reports from the leading brokers provides a good overview of the broad market conditions seen at the January renewals and can provide some hints at what to expect at the future renewals in 2016, if no major events occur to sway market sentiment.

Clearly some of the pressure from capital comes from alternative capital markets and ILS. A good question that comes to mind now though, is which capital is the excess, the traditional or the alternative? With alternative capital providing valuable efficiency to cedents capital structures, it is perhaps possible to argue that the excess should be taken out of traditional capacity, rather than the alternative. A discussion for another day.

The transcript of Issavi’s discussion also provided some commentary on the state of the reinsurance market at 1/1 2016 across some of the core lines of business and geographies, which we reproduce below.


Property Catastrophe XOL
Generally, the market fared better than in the renewal season a year ago, with rates falling approximately between -5 and -10 percent. The rate declines in the U.S. were generally in the range of -2.5 to -7.5 percent while International had a broader negative range of approximately -5 to -15 percent. Internationally, January is a larger renewal date for European clients than the rest of the world. Generally, terms and conditions remained broadly stable from a year ago. The market appears to have held some ground despite coming off three years without a major catastrophe loss.

Additionally, the renewal season saw some higher retentions but overall this does not appear to be a significant trend and was largely consistent with expiring levels.

Property Per Risk
In the U.S., market conditions remained challenging for all segments (E&S, National, Regional, Personal) driven primarily by an overabundance of risk capacity and lack of major CAT loss activity. Original rate changes generally ranged from flat to -5 percent while excess treaty rates were in the -2.5 to -10 percent range on an exposure adjusted basis.  The market saw pressure on treaty terms and conditions (Terrorism, Occurrence Limits, Reinstatements), but the market continues to successfully push back in many instances where terms and conditions became unreasonable (i.e. inclusion of NBCR on urban portfolios, free reinstatements on high excess layers).

Internationally, the market saw rates decline approximately -5 to -15 percent on loss free portfolios. The largest rate declines were in Europe, followed by Latin America and Asia. In all regions, main terms and conditions generally remained in line with expiring ones. Portfolios with risk losses had more difficult placements and were less affected by negative rate movements.

Property Proportional
In the U.S., original property rates were generally down but seem to be leveling off. Upward pressure continued on treaty ceding commissions albeit at a slower rate. Rates generally ranged from flat to -5 percent depending on size and scope of the subject business. Outside the U.S., rate changes were down approximately -5 to -10 percent. Generally, there was greater pressure on commissions while terms remained somewhat stable.


Continued market diversification away from property cat is putting greater rate pressure on Casualty and Specialty lines. Generally, rate decreases for both U.S. and International were limited to -2.5 to -5 percent.  The heaviest activity in this area came from the London market, mainly on international business. Record low investment yields are proving to be a persistent problem for returns that can only be addressed through achieving adequate underwriting rate for exposure. This is particularly relevant in the longer tail lines, such as workers compensation, products liability and medical malpractice.

New markets are not likely to be successful in diversifying themselves by cutting pricing in this environment and clients continue to be careful about their long tail counter party reinsurers.

Broadly, commissions on pro-rata saw continued pressure but within acceptable ranges. The market did not see new levels of softening here from a year ago.  Terms and conditions also remained generally stable.


Marine & Energy
Most programmes renewed in the -5 to -10 percent range while programmes materially impacted by 2015 losses saw increases of approximately 5 to 10 percent.  Generally, pro-rata commissions were held broadly flat for offshore energy with original rate reductions driving rate decreases in the -5 to -7.5 percent range.

Renewals focussed on XOL with rate decreases of approximately -10 to -15 percent.

Generally, decreases in the -5 to -7.5 percent range depending on the structure of the program.

The market generally behaved well with reductions of approximately -2.5 to -5 percent.

Outside of pricing, there appears to have been limited widening of conditions for these classes.

Trade Credit & Surety Reinsurance
Profitable results for trade credit reinsurance in the years following the 2008 financial crisis attracted new capacity and resulted in modest rate reductions in the low single digit range. The market saw softening rates of approximately -1 to -5 percent for well-performing treaties. On treaties impacted by loss, terms and price generally improved. There were no major changes to buying habits of cedants. Economic uncertainties from areas such as Brazil and political unrest in other areas are causing the market and capacity deployed to be broadly disciplined.

Read all our reinsurance renewals news and analysis here.

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