Reinsurance rate reductions slow but stability remains elusive: Willis

The magnitude of reinsurance rate reductions has slowed but a softening continued in many lines in the June/July 2016 renewal season, according to a report from Willis Re, which adds that stability in the market remains elusive.

The ‘Willis Re 1st View Report’ suggested capacity withdrawals where some reinsurers deem pricing to be inadequate is also evident. However, it said considerable pricing variation by class and territory persists, and that any indication of widespread pricing stabilisation “remains elusive”.

John Cavanagh, global chief executive officer (CEO) of Willis Re, said: “Capacity remains abundant and continues to overhang the market in virtually all classes and regions. With no material impact from catastrophe loss activity now for the last few years, rating pressure persists. So far in 2016, only one major catastrophe loss – the Fort McMurray fires – will produce any meaningful catastrophe claims for reinsurers.

“Any relief that pricing may be nearing the bottom of the cycle is counterbalanced by concern over how and when rates might start to increase, even modestly, on a wider basis. The alternative is a market that faces a number of years bumping along at current levels earning very modest returns.”

The report also highlights that in the face of continued pricing and interest rate pressure, cost control measures remain a priority for many reinsurers.

Cavanagh added: “The drive to achieve market efficiencies and cost reductions is picking up pace, particularly in the London market. The UK’s decision to leave the EU provides an additional dynamic, with the exact implications for future policy and regulation unknown.”

The report also suggests that reinsurers are becoming acutely aware of the profound change that financial technology applications will drive in the primary insurance markets. Willis Re suggests far sighted reinsurers are also considering the opportunities financial technology applications may provide for their own activities.

Cavanagh concluded: “In the current environment, the balance of risk retention versus return is more acute than ever. The ability of individual reinsurers to manage this crucial dynamic will have a profound impact on the shape of the market to emerge, if or when the rating environment finally offers some relief.”