Nearly all lines of business experienced price declines on January 1 renewal, according to “1st View Renewals Report,” from Willis Re, the reinsurance division of reinsurance broker Willis Group Holdings plc. Willis’ findings were largely in line with those
“A heady cocktail of converging factors has fuelled a soft buyers’ market in nearly all lines of business,” Willis Re said, and reinsurers face a host of challenges, including rate reductions, new capacity and market entrants, low interest rates, greater retention of reinsurance premiums by large buyers, diminishing reserve releases, expansion in terms and conditions, and increasing regulatory oversight.
“The key influence on the 1 January renewals has been overcapacity triggered by a number of converging factors,” said John Cavanagh, CEO of Willis Re. “Strong 2013 results have bolstered traditional reinsurers’ already strong balance sheets. New capital from non-traditional capital market sources has grown to reach US$50 billion. These factors have been compounded by muted demand from buyers arising from the longer term trend of better regulation, which has in turn led to a better understanding and management of tail risk, as well as the trend of major insurance groups to retain more reinsurance premium volume and risk on their own growing balance sheets.”
Rates declined on most lines at renewal on Jan. 1, 2014. Pricing margins on excess of loss business have been compressed, Willis Re said, and ceding commissions increased on pro rata treaties for sought-after clients with large ceded premium volumes.
Highlights from the report for the United States:
Markets are softening as increased capacity from non-traditional capital providers, in addition to retained earnings from a benign catastrophe year, is pressuring traditional reinsurers to offer significant price reductions to compete for incumbent business.
Risk-adjusted price reductions are being seen in all sectors.
There are wide variations for regional and state specific programs depending on loss experience and reliability of vendor models.
Accounts with increased estimated losses are seeing the largest risk-adjusted decreases as premium dollar reductions are lessened by increased layer exposures.
The softening market is affecting terms and conditions as well as price.
Multi-year contracts and market facilities are becoming more common, as reinsurers look to lock in business.
“Faced with these market headwinds, reinsurers are adopting a variety of strategies,” said Peter Hearn, chairman of Willis Re. “Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals. Others are expanding into specialty lines and many have developed multi-channel capacity offerings seeking to use their underwriting expertise to deploy capacity on behalf of capital markets. Additionally, we have seen the rise of pooling arrangements that give smaller reinsurers the opportunity to access business they might not otherwise see in their local markets.”
