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Reinsurance placements at January 01, 2019 have shown a pricing gap between accounts with peak peril exposures or poor loss records and the rest, Willis Re observed.
Furthermore, many reinsurers are placing emphasis on the quality of client counterparties, according to the latest 1st View renewals report from the reinsurance division of global brokerage and consultancy Willis Towers Watson.
The report said that a two-track trend emerged in property catastrophe renewals, where cedants with good loss records and a disciplined, early renewal process achieved risk-adjusted rate reductions. On the other hand, loss-impacted accounts and clients viewed as being of lesser quality are seeing upward pricing across several lines.
The insurance-linked securities (ILS) market encountered some challenges due to the lack of a major pricing uptick following significant loss erosion for some funds in both 2017 and 2018. Some funds encountered difficulty attracting new investors, while those with long-standing and successful track records, consistent and well-regarded management teams, and flexible trust language or fronting agreements are the ones best equipped for success, Willis Re said.
Adjustments to business models initiated over the year have become more urgent, including the well-documented changes within the Lloyd’s market. This resulted in some primary lines having larger rate increases than treaty reinsurance business.
Additionally, reinsurers have benefited from increases in premium ceded by large carriers, especially through large new pro rata cessions where terms have slightly tilted in reinsurers’ favour. Meanwhile, major reinsurers’ strength and client-centric flexibility remain essential to large cedants’ goal of dampening earnings volatility.
“In the immediate aftermath of the 2017 catastrophe losses, many observers felt the measured reaction of the reinsurance market was a clear sign of a changing structure and maturity,” said James Kent, global CEO of Willis Re. “Others more cautiously suggested time was needed to properly assess the impact of 2017 events. In the wake of the high loss activity during the second half of 2018, early renewal negotiations have proved prudent, while pricing in the primary market has given reinsurers some cause for optimism in light of the increased pro rata cessions from clients.”
