Despite the signs of pricing stabilisation in peak property catastrophe zones during the June/July 2015 renewals, the forecasts for a softening in reinsurance pricing have proved illusory, according to Willis.
According to the report, 1st View Renewals, rates have continued to decline across the majority of markets, with few examples of any slowdown in pricing deterioration.
One example is that reinsurers have faced difficult renewal dynamics in the global specialty markets, especially within the aviation and energy sectors. Large losses and reductions in original rates have yet to divert the inflow of additional capacity.
Casualty markets have not offered reinsurers any relief from further rate reductions, despite an increase in adverse results across a number of non-motor classes.
In addition, risk adjusted rate reductions continue for property catastrophe pricing, although there has been a notable slowdown in rate reductions for high layer US property catastrophe cover where the insurance-linked securities (ILS) markets have taken a more disciplined approach.
Underpinning these dynamics, despite signs that some insurers are utilising rate reductions to buy more reinsurance, some of the larger firms continue to increase their reinsurance retentions.
The negative outlook for investment income also remains, with concern around the dislocation in the high yield bond market a potential precursor for further turmoil in bond markets as interest rates rise.
The M&A trend also continues unabated, with the increasing role of Asian-sourced capital helping to drive valuations, as is the role of buyers looking to buy scale and market relevance as deals drive more deals.
John Cavanagh, global CEO of Willis Re, said: “The January renewals have unfortunately confounded the hopes of commentators that the market was reaching a pricing floor. However, as reinsurers look to close their 2015 accounts, most will likely report reasonable headline results.”
He added: “But amidst the challenging environment, two positive developments stand out. First, the recent announcement by Lloyd’s that it plans to launch a trading index to help stimulate the development of a secondary trading market and ‘attract the interest of the wider capital markets’.”
“Second, the announcement by Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board, of an industry led task force. Chaired by former New York City Mayor, Michael Bloomberg, it will develop company disclosures for investors to assess physical, liability and transitional risks from climate change and related policies.”
