The reinsurance market has maintained the downward pricing trends seen at the January and April renewals, despite first quarter deterioration for many reinsurers’ results, Willis Re, Willis Towers Watson P.L.C.’s reinsurance division said Friday.
The thrice-yearly Willis Re 1st View report found that the continued softening has been driven by the realization that, for the global reinsurance industry, the June and July renewal seasons are the last realistic chance for underwriters to meet their 2017 premium targets.
“This was clearly seen in the Florida renewals,” the report said, “where, in the face of flat demand, a larger than anticipated influx of capacity, particularly from Insurance Linked Securities (ILS) markets, led to not only a further drop in pricing from the 2016 renewals but at a greater pace, albeit slight, than the reductions seen on U.S. property catastrophe programs earlier this year.”
Rate reductions across most lines in international markets followed the improving trend seen in January and April renewals with a strong demand from ILS investors, the report said, where ILS markets’ pricing is now matching or, in a few selected cases, more competitive than traditional reinsurers.
The report said underlying loss and expense ratios for many reinsurers are showing a worrying trend, with combined ratios for many classes now looking unattractive, according to the report.
Underlying loss and expense ratios for many reinsurers are showing a disturbing trend, the report said, with combined ratios for many classes now looking unattractive.
Cost control measures are being applied widely and more aggressively across the entire reinsurance chain as a result stubbornly soft pricing, the report said.
Market initiatives to contain and reduce costs, such as the London market Placing Platform Limited (PPL) initiative, are seeing increased impetus and support as the importance of the promise of greater efficiency is recognized.
“Yet again, we’re in a position where the weakening in the global reinsurance industry’s performance has not reached an unacceptable level,” John Cavanagh, global CEO of Willis Re, said in a statement. “Reinsurers across the board do not yet feel compelled to take a stronger stance over conceding further modest rate reductions and walking away from clients. Much now will depend on loss activity in the traditionally more active third and fourth quarters and on any instability in investment returns.”
The report said the recent WannaCry cyber attack, which reportedly infected more than 230,000 computers in over 150 countries, shined a bright light on the future potential for the cyber reinsurance market but the longstanding puzzle of understanding and managing systemic cyber risk accumulation remains unsolved, despite the substantial ongoing efforts by many market participants.
“The goal of developing the cyber reinsurance market to sufficient scale so that it can help
absorb the excess capital currently supporting the reinsurance industry remains some way off but, with an appropriate understanding of risk, it is ultimately achievable,” the report said.