Reinsurance rates deteriorate in July renewals due to overcapacity
Reinsurance rates deteriorated further in the July 1 renewals despite first quarter deterioration for many reinsurers’ results, according to the latest 1st View renewals report from Willis Re.
The price reductions follow rate drops in the January and April renewals. The continued softening has been driven by the realization that for the global reinsurance industry, the June and July renewal seasons are the last realistic chance for underwriters to meet their 2017 premium targets, Willis Re commented.
This was seen in the Florida renewals where, in the face of flat demand, a larger than anticipated influx of capacity, particularly from insurance linked securities (ILS) markets, led to a further drop in pricing from the 2016 renewals, and at a greater pace than the reductions seen on US property catastrophe earlier this year.
Underlying loss and expense ratios for many reinsurers are showing a worrying trend, with combined ratios for many classes now looking unattractive, according to the report.
The report also highlights that as a result of stubbornly soft pricing, cost control measures are being applied widely and more aggressively across the entire reinsurance chain. Market initiatives to contain and reduce costs, such as the London market Placing Platform Limited (PPL) initiative, are seeing increased impetus and support as the importance of the promise of greater efficiency is recognized.
“Yet again, we’re in a position where the weakening in the global reinsurance industry’s performance has not reached an unacceptable level," said John Cavanagh, global CEO of Willis Re. "Reinsurers across the board do not yet feel compelled to take a stronger stance over conceding further modest rate reductions and walking away from clients. Much now will depend on loss activity in the traditionally more active third and fourth quarters and on any instability in investment returns.”
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