Pricing gap highlighted by new Willis Re report
Reinsurance placements at 1 January 2019 highlight a pricing gap between accounts with peak peril exposures or poor loss records and the rest, with many reinsurers placing emphasis on the quality of client counterparties, according to the latest 1st View renewals report from Willis Re.
A two-track trend has been especially evident in property catastrophe renewals, where cedants with good loss records and a disciplined, early renewal process achieved risk-adjusted rate reductions, while loss impacted accounts and clients viewed as of lesser quality are seeing upward pricing across a number of lines.
The ILS market faces a more comprehensive test in the absence of a major pricing uptick following significant loss erosion for some funds in both 2017 and 2018. Some funds are challenged in attracting new investors, and those with long-standing and successful track records, consistent and well-regarded management teams, and flexible trust language or fronting agreements are the ones best equipped for success.
The report stated that: “January 1, 2019, placements have highlighted the gap between pricing for accounts with peak peril exposures and/or poor loss records, and those with good loss records and/or non-peak exposures. The quality of the client counterparty is a significant factor in risk selection by many reinsurers. Notably, European property catastrophe renewals that benefit both from good loss records and a disciplined early renewal process have been able to achieve some risk-adjusted rate reductions, and similarly in the US, reinsurers’ support for the “preferred” clients is evident in relatively muted renewal pricing on non-loss-impacted business. Buyers who delayed their approach to market in the hope of achieving better prices have found that, for the first time in a number of years, this tactic has not been successful. As 2019 pricing unfolds, the mid-year renewals may help to answer the longstanding question over how much impact the retro market has on first-tier reinsurance property catastrophe pricing levels.”
According to the report, adjustments to business models initiated over the year have taken on an increased urgency, including the well-documented changes within the Lloyd’s market. As a result Willis Re said that some primary lines are seeing significantly larger rate increases than treaty reinsurance business.
Reinsurers have benefited from increases in premium ceded by large carriers, notably through large new pro rata cessions where terms have slightly tilted in reinsurers’ favour. At the same time, major reinsurers’ strength and client-centric flexibility remain key to large cedants’ goal of dampening earnings volatility.
“In the immediate aftermath of the 2017 catastrophe losses, many observers felt the measured reaction of the reinsurance market was a clear sign of a changing structure and maturity,” said James Kent, Global CEO, Willis Re. “Others more cautiously suggested time was needed to properly assess the impact of 2017 events. In the wake of the high loss activity during the second half of 2018, early renewal negotiations have proved prudent, while pricing in the primary market has given reinsurers some cause for optimism in light of the increased pro rata cessions from clients.”
Get all the latest re/insurance industry news with our daily newsletter - sign up here.
More of today's news
Reinsurance rates down 1.2% at Jan renewals: JLT Re
China Re finalises Chaucer acquisition
Generali completes India transaction
Enstar finishes up Maiden Re transaction
QBE implements post-Brexit plans
Arch completes Ardonagh deal
