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Competition Drives Down Some Property Catastrophe Reinsurance Pricing

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July 24, 2018

According to the latest first view report from Willis Re, titled 1st View New Normal Emerges, momentum for rate increases on loss-free reinsurance accounts dissipated during the June and July property catastrophe renewals, and, in some cases, pricing declined. For example, 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 nontraditional players offered layers with reinstatements.

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.

The report covers pricing trends across Australia, the Caribbean, China, Latin America, the Middle East, the United Kingdom, United States—Florida, and United States—Nationwide.

Overall, three trends drove the property catastrophe renewals.

  • Excess capital leading to a surplus of capacity both from traditional and insurance-linked securities markets
  • Stabilization of 2017 natural catastrophe loss estimates, which typically remain below initial projections and often retained net by larger insurers
  • Benign loss activity so far during 2018

Willis Re said that, together, these three factors are driving the emergence of a "new normal" in property cat reinsurance pricing, and insurers have begun to react. Some have cut costs, while others are actively reviewing the profitability of every piece of business on their books and responding accordingly.

Willis Re believes this approach will ultimately prove beneficial, as it promotes the discipline that ensures buyers receive long-term, stable support from financially secure counterparties, but it may yet result in challenges for some businesses. For example, with reinsurers' emphasis shifting from top-line growth to pure underwriting profitability and control, some insurers may reconsider their managing general agent strategy, endangering some coverholder relationships. The new pricing normal is likely also to impact mergers and acquisitions, 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."

Download the full complimentary report on the Willis Towers Watson website.

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