Reinsurance pricing has continued to fall almost across the board at the 1 April 2014 renewals, according to the 1st View renewals report from Willis Re, the reinsurance division of risk advisor, insurance and reinsurance broker Willis Group Holdings.
Trends observed during the 1 January 2014 renewals continued and showed clear signs of acceleration. Positive 2013 results for traditional reinsurers and a seemingly unabated supply of capital from third party investors have added further to the oversupply of reinsurance capacity chasing muted demand.
John Cavanagh, CEO of Willis Re, commented: “The 1 April renewals have seen a softening of rates across nearly all classes and geographies which, in turn, has allowed buyers to achieve substantial savings in the cost of their reinsurance protections.”
“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.”
“Restructuring and consolidation of covers by some of the larger buyers continues to be a trend along with M and A consolidation causing further compression in price in favour of the buyer.”
Many primary insurance company buyers, particularly international and regional US companies, remain cautious in their use of insurance-linked securities (ILS) and collateralised markets.
Reinsurers have also stepped up efforts to manage their capital through increased share buy backs, special dividends and other techniques. In spite of the softening rate outlook, stock valuations of quoted companies remain high. Moreover, a number of companies are taking benefitting from public share offerings to provide existing investors with an exit strategy.
Chairman of Willis Re, Peter Hearn, said: “The current reinsurance market clearly favours the buyer. The cost of reinsurance is falling much faster than original rates in many classes and territories.”
“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?”
