Any momentum for property catastrophe reinsurance rate hikes in place earlier this year has largely dissipated during the June/July renewals, and some pricing has even dipped, Willis Re said in its latest “1st View” renewals report.
Willis Re attributes the trend to three factors: excess capital, the stabilization of 2017 natural catastrophe loss estimates and relatively low loss estimates for the 2018 first half.
Willis Re calls this trend an “emerging new market normal.” In his report introduction, Willis Re Global CEO James Kent notes that traditional risk carriers are dealing with significant pressure ahead to adjust their business models accordingly.
“Proactive carriers are applying far greater rigor to ensure the profitability of every line of business they accept,” Kent said in prepared remarks. “The diversity and top-line contribution of marginal lines no longer makes them acceptable if they cannot earn an adequate return.”
This active cost-cutting and profitability review of each business line is ultimately a good thing, Willis Re said, because it promotes discipline that allows buyers to get long-term, stable support “from financially secure counterparties.”
There could easily be some challenges ahead, however. Willis Re notes that with reinsurers shifting their emphasis from top-line growth to “pure underwriting profitability and control,” some carriers could reconsider their MGA strategy. If they do, Willis Re emphasized that this could place risk on some coverholder relationships.
M&A could also be impacted by reinsurers’ market shift, with acquirers becoming more cautious and sellers having to adjust what they expect on price.
The Willis Re report gave Florida’s loss-free property cat market as one example of the trend it is seeing. Most of the accounts saw flat pricing, but some saw rate declines of up to 7.5 percent due to heavy competition and offers by nontraditional players of layers with reinstatements, Willis Re noted.
Beyond property catastrophe, Willis Re said other reinsurance lines also have experienced varied results for midyear renewals. There is also some firming of insurance pricing, where original loss ratios have deteriorated because of sequential years of rate reductions or high loss activity. Willis Re said that U.S. medical malpractice, commercial auto and international D&O all reflect this firming trend.
Source: Willis Re