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The Latest Reinsurance Renewals Bring "Tangible Pricing Momentum"

global increase -SF
July 03, 2019

According to the latest Willis Re 1st View: A Discerning Market report, the June and July reinsurance renewal period has "witnessed tangible pricing momentum" and "some tightening in terms and conditions."

More notable, said the report, are considerable changes in primary markets.  Specifically, the report said, "the impact of global commercial carriers and Lloyd's repositioning their portfolios, in terms of price, conditions and capacity, is flowing through into most territories and classes, with an acceleration in the primary market from that previously observed."

Continued natural catastrophe loss development from 2017 and 2018 provides reinforcement for the tightening terms sought by the reinsurance market. The June 1 Florida renewals saw a pullback from insurance-linked securities (ILS) markets, and some conventional reinsurers where the retrocession market have been noticeably affected by changes in appetite and capacity. 

The report said, '[S]ome players who significantly relied on ILS retrocession capacity are finding their business models under stress as this capacity pulls back. The change in ILS capacity has left an opening for reinsurers who are less reliant on retrocession capacity to expand their portfolios in the improving pricing environment."

Willis Re finds that the reinsurance market remains well capitalized with the ability to provide stable capacity.

Key findings from the report are as follows.

  • Strengthening primary insurance market conditions underpinned improvements to reinsurance prices, terms, and conditions at the June 1 and July 1, 2019, renewals.

  • Almost all buyers were able to secure the capacity they desired, but differentiation between cedents by reinsurers has increased.

  • Nonmarine retrocession coverage saw the greatest price increases of up to 35 percent for loss-hit programs, while loss-hit Florida and US-nationwide property catastrophe and per-risk exposures saw prices rise by up to 25 percent. However, there was a significant range in pricing achieved depending on the quality of the company and its recent performance, particularly on the accuracy of previous catastrophe loss estimates.

  • In casualty lines, pro rata treaty commissions typically declined, notwithstanding improvements in the underlying terms and conditions for most classes, although the same dynamic of superior pricing for the better-performing companies was seen in casualty lines, too.

  • Worsening loss ratios and declining reserve redundancy across a number of long tail lines point to insurers seeking continued momentum to ensure sustainable returns.

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