Quiet Renewals for Reinsurance Sector as April Pricing Remains Flat

In its latest report, Willis Re said that reinsurers looking for meaningful rate increases on their April renewals instead saw the continuation of a broadly flat pricing environment. The report said that certain modest increases in reinsurance purchases have resulted from some underlying exposure growth. However, more broadly, the report finds that there are now new prospects and additional premium as C-suite decision makers examine using reinsurance to back earnings and capital management, with the value of reinsurance seen as higher than it has been in recent years.

The report reveals that managers at many re/insurers are moving to action to "reshape their portfolios, exiting unprofitable lines of business and implementing cost-saving programs" in response to worsening results in non-natural catastrophe lines and limited reserve release now available from earlier years. According to James Kent, global CEO, Willis Re, "The 'Big Balance Sheet' reinsurer model is being reinvigorated, and the real test for management will be their portfolio management ability and the agile use of their large balance sheets."   

Mr. Kent said, "The pricing environment for the April renewals has closely mirrored that of the January 1 placements, with pricing dampened by the continued impact of plentiful capacity from both traditional and Insurance Linked Securities (ILS) markets and with the latter's impact most apparent on property catastrophe pricing." According to the report, ILS funds have rapidly reloaded and there is continued capital oversupply despite 2017 losses from Hurricane Harvey, Irma, and Maria, which were initially overstated.

Mr. Kent continued, "Mergers and acquisitions in the sector, driven by large primary insurers returning to the reinsurance space, has also helped to keep capital plentiful, meaning that it remains a buyer's market. However, reinsurers can take some solace from the fact that the annual price declines of recent years have abated. We are also seeing a pick-up in demand as a result of exposure growth plus an increase in buying activity, most noticeably from some large global clients."