Reinsurance carriers have begun reacting to a ‘new normal’ in property catastrophe reinsurance pricing, brought together by three major factors.
According to the 1st View renewals report by Willis Re, three trends dominated the recent June/July property cat renewals:
Momentum for rate increases on loss-free reinsurance accounts dissipated during the midyear renewals, with pricing declining in some cases. While most loss-free Florida property accounts were flat, some saw rates go down by 7.5%, due to intensified competition in the sector, as well as non-traditional players offering layers with reinstatements.
Meanwhile, reinsurance lines beyond property catastrophe have experienced varied results for the renewal season, the report revealed. Reinsurance pricing has firmed in areas where original loss ratios have deteriorated due to sequential years of rate reductions or high loss activity.
Willis Re said that carriers are reacting differently to these trends, with some cutting costs, while others launch reviews on the profitability of various aspects of their portfolios, and then take the necessary actions.
Overall, the approach will be good for the industry, as it promotes discipline to ensure that buyers receive long-term, stable support from financially secure counterparties. However, it can also lead to difficulties for some firms, the report said.
Reinsurers shifting focus from top-line growth to pure underwriting profitability and control could lead to some carriers realigning their MGA strategy, jeopardising some coverholder relationships. The new status quo could also impact companies’ M&A strategies, with buyers becoming more careful while sellers adjust their pricing expectations.
“Traditional risk carriers face an intense imperative to respond to the new normal with an adjusted business model,” said James Kent, global CEO of Willis Re. “Proactive carriers are applying far greater rigor to ensure the profitability of every line of business they accept. The diversity and top-line contribution of marginal lines no longer makes them acceptable if they cannot earn an adequate return.”
