Reinsurers' prudence, replenished capital drive mid-year renewals: Willis Re

Reinsurance capital levels were only 5 percent lower than at the end of 2019 and carriers were able to secure sufficient capacity at the July at the June 1 and July 1 renewals, according to Willis Towers Watson.

Willis Re attributed this "remarkable recovery" to improvement in the investment markets, as well as, reinsurers own prudent risk and cost management.

“The global reinsurance market was not capital-constrained during the recent renewals, but has shown a greater level of prudence with an increased focus on underwriting profitability," said James Kent, Global CEO of Willis Re. "More persistent hardening is evident largely across the board, but reinsurers continue to exercise clear differentiation between clients, lines of business, and territories. The value of sustained relationships has once again been proved.”

Double-digit risk-adjusted reinsurance price increases were seen for loss-hit catastrophe treaties and ranged from +10 to +20 percent for the programs of Australian and Latin American insurers, to as much as +35 percent in the Florida homeowner renewals.

"The longstanding underlying issues of rate inadequacy continued to fuel measured rate adjustments in many classes and geographies, led by the US treaty market," Willis Re said. "Rate increases were prevalent but much less dramatic for loss-free catastrophe treaties with limited peak catastrophe exposure."

For casualty business, excess of loss treaties with loss emergence saw rates rises. US healthcare liability saw increases by as much as +40 percent, but "those long-tail lines of business with stable prior-year results renewed as expiring or with modest price increases," Willis Re said. Pro-rata commissions were flat or reduced by up to 2.5 percentage points, largely driven by the extent of pricing changes on original policies.

Reinsurers are recognising that COVID-19 losses, which currently are reported at about $7 billion, may take several years to settle which will spread out reserving over many quarters, it said. Meanwhile, the pandemic has driven a second realisation: the impacts of a pandemic loss on the asset and liability sides of the market’s balance sheet are highly correlated. As a result, investors have remained cautious and selective as they continue to withdraw capital from some ILS funds whilst favouring better performing funds and rated reinsurers, according to Willis Re.