Reinsurance demand uptick despite price softening, reinsurers may not grant more concessions: Willis Re

Encouraging signs for reinsurers are coming to light despite reinsurance rates falling for the fourth consecutive year at the Apr. 1, renewals, suggests Willis Re suggests in its latest 1st View Reinsurance Renewals report.

“Amidst a gloomy picture of sustained pricing pressure, encouraging signs for reinsurers are starting to show,” notes a statement late last week from Willis Towers Watson Public Limited Company.

Willis Re, the reinsurance business of global advisory, broking and solutions company Willis Towers Watson, reports that despite continuing price softening, there was an uptick in demand at the Apr. 1, 2016 reinsurance renewals.

“As observed during the January 2016 renewals, a number of larger insurers, which over the last few years were driving strategies to retain more risk on their balance sheets, have been looking to selectively reverse their thinking,” the statement explains.

“This is leading to an increase in cessions to selected third-party reinsurers, both on traditional risk-sharing reinsurance structures, as well as loss portfolio transfers and adverse development covers,” Willis Re point out.

“The underlying reasons for the reversal in reinsurance-buying strategies are distinctive to each client,” says John Cavanagh (pictured left), global CEO of Willis Re.

“But increased regulation, which has promoted a more holistic view of risk and reward, allied with shareholder pressure to improve ROEs by reducing the equity element of the calculation, are clearly two overall drivers,” Cavanagh comments.

Despite this, he notes in the renewals report, “it is premature to conclude that the current market cycle is bottoming out. The underlying imbalance of capital supply and muted demand allied to reinsurers’ largely satisfactory 2015 results continues to hang over the market,” he cautions.

“Yet again, the twin saviors have been prior year reserve releases and the lack of major losses linked to active capital management strategies,” Cavanagh adds.

Willis Re reports that although insurers continue to seek improvements in pricing and terms and conditions from their reinsurance partners, overall, price reductions at Apr. 1, 2016 were marginally less than those attained 12 months earlier.

“Any broadening of terms and conditions also remained largely stable,” the statement adds.

“Premium savings have, yet again, been the main thrust for most buyers and the opportunity to broaden contractual terms and conditions continues,” Cavanagh states in the report.

“It is also becoming increasingly evident that although most reinsurers are accommodating client requests, many are now at the point where they are no longer prepared to grant any further concessions, irrespective of relationship considerations,” Willis Re suggests. While this does not signal a pricing floor or an end to current conditions, for certain markets, “it does suggest a slowdown in pricing deterioration,” it adds.

“Ultimately, buyers are still reaping the rewards of competitive conditions and reinsurers will need another below average loss year to produce acceptable results in the face of a tough 2016,” comments Cavanagh. “But the apparent uptick in demand is certainly a positive sign,” he goes on to say.