After Groundhog Day—change in the air, claims JLT Re

The reinsurance sector is seeing early signs of change as it heads towards the end of year renewal period, according to a new report put out by JLT Re.

“2015 has been different from 2014 and 2013—and in a different way, from 2012—in terms of what’s happening,” David Flandro, global head of analytics, JLT Re, told Monte Carlo Today as he explained the findings of the report.

“Some market participants have called this whole exercise here in Monte Carlo ‘Groundhog Day’ for the last couple of years, because they say, ok, we’re going to come down here, we’re going to talk about convergence capital, rates are going to go down, and it’s just the same thing over and over again.

“This year something different is happening, there is change in the air, albeit with a question mark. This year we’ve been able to discern three things that are quite different from previous years.”

According to Flandro, the first one is that the rate of inflow of capital, whether from alternative or traditional or third party or convergent sources, is slowing a little.

“Don’t get me wrong, it’s still coming in, but the rate seems to have slowed,” he said.

“Catastrophe bonds outstanding in the first half of the year have increased year on year, but this year, issuance seems to have decreased slightly and in fact some of the earlier estimates that were out there six months ago have been moderated somewhat. So, the rate of entry of third party capital seems to be moderating a little.”

The second thing that JLT Re has identified in the market is that there has been structural, rather than attritional, mergers and acquisitions (M&A) activity among reinsurers, as smaller and specialised players in particular consider consolidating in order to remain relevant.

The final point that JLT Re mentioned was that there was increased demand for reinsurance in the June and July 2015 renewals, as a number of buyers took advantage of low pricing and cyclically favourable terms and conditions, especially for US property-catastrophe business.

Flandro brought up an interesting point that JLT Re has picked up on—the January 1 renewals have become the point that marks the end of the annual renewal season, and can no longer be seen as indicative of what is to come in the new year. Instead the mid-year renewals have increasingly shaped the direction of the market.

However, Flandro stressed, 2015 is not over yet and a sufficiently large catastrophe, such as a windstorm, could see the market change yet again. As things stand at the Monte Carlo Rendez-Vous though, change could be in the air.