April 1, 2014 by Canadian Underwriter
Reinsurance pricing continued to fall almost across the board at the Apr. 1 renewals, with trends observed during the Jan. 1 renewals continuing and showing clear signs of acceleration, Willis Re notes in its 1st View renewals report, released Tuesday.
Positive 2013 results for traditional reinsurers and a seemingly unabated supply of capital from third-party investors have added to the oversupply of reinsurance capacity chasing muted demand, notes Willis Re, the reinsurance division of risk advisor, insurance and reinsurance broker Willis Group Holdings plc.
A softening of rates across almost all classes and geographies “has allowed buyers to achieve substantial savings in the cost of their reinsurance protections,” Willis Re CEO John Cavanagh notes in the statement.
“Some buyers took the opportunity to buy more cover and some renewals saw an expansion in terms and conditions. The overriding target for most buyers, however, was to achieve price reductions or an increase in ceding commissions,” Cavanagh continues.
Looking at rates, the report shows that Indian property rates are down by as much as 20% on non-loss affected lines, Japan Earthquake is down by up to 17.5% on non-loss affected lines, and United States nationwide property rates are down by as much as 20% on non-loss affected lines.
Looking specifically at the U.S., the report provides the following observations:
Overall, the report notes that in addition to the primary reinsurance market, the retrocession market has been the key area of activity for insurance-linked securities (ILS) and collateralized markets; and capital markets investors are now entering non-catastrophe markets, usually closely aligned to traditional reinsurers with technical underwriting skills.
Major traditional reinsurers have worked hard to optimize the use of their client relationships, capacity and technical underwriting capability to protect and, in some cases, increase their shares to help withstand the challenges of competing with ILS and collateralized markets, Willis Re reports.
With regard to capital markets, Willis Re notes, among other things, the following:
“The current reinsurance market clearly favours the buyer. The cost of reinsurance is falling much faster than original rates in many classes and territories,” Peter Hearn, chairman of Willis Re, says in the statement.
“Comfortable though this situation may be for many buyers, the nagging concern remains as to timing. When will a lower cost of reinsurance feed through in lower original rates and put primary companies’ margins back under pressure?”
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