Loss-free Florida property flat at June/July renewals
Momentum for rate increases on loss-free reinsurance accounts dissipated during the June/July property catastrophe renewals, and in some cases, pricing declined, according to Willis Re.
Although most loss-free Florida property accounts were flat, some saw rate declines of up to -7.5 percent, as competition for this business was heightened, and non-traditional players offered layers with reinstatements, according to the “Willis Re 1st View” report.
Reinsurance lines beyond property catastrophe have seen varied results for the mid-year renewals and where original loss ratios have deteriorated due to sequential years of rate reductions or high loss activity, reinsurance pricing has firmed.
Renewals were marked by excess capital leading to a surplus of capacity both from traditional and insurance-linked securities (ILS) markets, the report said.
Price negotiations saw a stabilization of 2017 natural catastrophe loss estimates, which typically remain below initial projections, and often retained net by larger insurers.
Pricing was also influenced by a benign loss activity so far during 2018, according to Willis Re.
Together these three factors are driving the emergence of a “new normal” in property cat reinsurance pricing, and carriers have begun to react, according to Willis Re. Some have cut costs while others are actively reviewing the profitability of every piece of business on their books and respond accordingly.
The broker warned that with reinsurers’ emphasis shifting from top-line growth to pure underwriting profitability and control, some carriers may reconsider their managing general agency (MGA) strategy, endangering some coverholder relationships. The new pricing normal is likely also to impact merger and acquisition (M&A), as acquirers exercise greater caution and sellers adjust their pricing expectations.
James Kent, Global CEO of Willis Re, said: “Traditional risk carriers face an intense imperative to respond to the new normal with an adjusted business model. Proactive carriers are applying far greater rigor to ensure the profitability of every line of business they accept. The diversity and top-line contribution of marginal lines no longer makes them acceptable if they cannot earn an adequate return.”
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