While there were no signs of generalized rate hardening during the April 1, 2019 renewal season, reinsurers have adopted a “rational” rating approach, asking for price increases of up to 25 percent, mainly targeted towards loss-affected contracts and programs, according to a new Willis Re report.
These rate increases were balanced by flat renewals for loss-free classes and programs, according to the report “Willis Re First View – Rational Markets, April 1, 2019.”
The report included a commentary on global aerospace renewals, which affirmed that the ongoing Ethiopian Airlines / Boeing 737 MAX grounding liability claim could potentially be the largest-ever non-war claim the market has incurred, which could erode three to four years’ worth of reinsurers’ global excess of loss premium.
Returning to the overall view that the April 1 renewals were rationally priced, Willis Re said, continued high levels of market capitalization both from traditional reinsurers and insurance-linked securities markets were the key to reinsurers’ pricing responses.
“At a time when some participants in the global reinsurance market are promoting the need for substantial across-the-board improvements in pricing, reinsurers delivered considered, rational price adjustments – a sign of the market’s stability and maturity,” said James Kent, Global CEO of Willis Re, in a forward to the report.
For treaty business, the report said, many reinsurers were hopeful that the April 1 renewals would see a stronger momentum for pricing increases than those seen on Jan. 1. However, there are no emerging signs of generalized hardening rate levels across the market and pricing remains rational, it went on to say.
Nevertheless, reinsurers are encouraged by primary rate increases across many classes and territories, which are filtering into reinsurance pricing, most obviously via proportional treaties, said Willis Re, noting that primary rates are actually moving faster than treaty rates.
The report explained that more conservative management of line sizes on large-commercial accounts “is driving much of the improvement in primary rates.” In addition to these efforts to manage line sizes, primary carriers are setting minimum rate increases for some lines of business and withdrawing from a number of specialty lines, it continued.
Reinsurers’ annual results during 2018 were adversely affected by abnormal loss activity, compounded by 2017 catastrophe loss creep and diminishing prior-year casualty reserve releases, the report said.
However, the balance sheets of traditional reinsurers remain strong, with virtually all reinsurers posting improved combined loss ratios for 2018, although for many reinsurers, the improvement was marginal.
Willis Re said overall interest from ILS investors remains mostly undimmed albeit with some modest changes in terms of risk appetite from some ILS managers and a handful of funds with materially less capital.
“The continued capital overhang in the market with supply outweighing demand is undoubtedly the key driver for the ongoing balance sheet management through share buy backs of a number of the largest quoted reinsurers,” the report said, explaining that in the absence of more attractive investment opportunities, shareholders prefer capital to be returned.
Source: Willis Re
*A version of this story ran previously in our sister publication Insurance Journal.