Latest reinsurance renewals good news for Australasian buyers: Willis Re

The firm publishes a global market analysis along with the main reinsurance renewals three times a year and has just released its January analysis.

The broker reports inconsistent market pricing by territory and client with little consensus between reinsurers in Asian property reinsurance business. Price reductions were larger and more widespread than expected.

Pro rata commission terms were stable with increases in event limits, and excess of loss placements were mostly oversubscribed. Willis states that there is still no shortage of capacity, despite a high catastrophe year and signs of a final turn in US interest rates.

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Pro rata capacity in Asian property business is, however, much tighter and reinsurers are showing “signs of fatigue”, notes Willis Re.

The broker selected a number of Australasian national property reinsurance markets for further comment, which further underlines that this region remains firmly a buyers’ market, despite some signs of nervousness in a number of regions as margins thin.

In China, cedants generally targeted a stable renewal without much change to structures or aggressive changes to terms. Overall, this property reinsurance market is not as soft as last year and reinsurers were selective on a treaty-by-treaty basis, comments the broker.

“Proportional treaties’ margins are being squeezed due to the net value-added-tax regime, making placements more difficult. Adequately priced excess of loss contracts are very popular. Although post-loss excess of loss contracts did not have significant price adjustment, they were still placed,” states Willis Re in its analysis.

The Indonesian property reinsurance market softened for loss-free programs beyond initially expected levels, explains Willis Re. It states that capacity still remains high and is supported by the continuation of the national property rating tariff.

Additional proportional property capacity is reportedly available, while additional fees for acquiring primary business are driving demand from primary companies for increased treaty commissions, according to Willis Re.

Local reinsurance companies in Indonesia have reportedly increased their acceptances for 2017, taking up the minimum local priority cessions.

In the Korean property reinsurance market, a lack of loss activity has led to “meaningful” pricing reductions, notes Willis Re.

“Risk adjusted price movements varied depending on portfolio composition. Reinsurers clearly identified client targets in advance of renewal; renewal pricing reflected this segmented approach. No meaningful change to conditions/exclusions,” reports the broker.

In the Philippines, there was a “marginal” increase in appetite for catastrophe business leading to rate reductions, reveals Willis Re.

Reinsurers reportedly resisted any increase in event limits on pro rata treaties and terms and conditions broadly as expiring.

Taiwanese insurers suffered heavy natural catastrophe losses in 2016 and these hit most excess of loss programmes. This resulted in a wide range of price movement that was driven by the severity of losses to individual programmes. Despite this, capacity remains “abundant” in most cases, according to Willis Re.

Property reinsurance capacity was stable in Vietnam and there was some increased interest from reinsurers outside of Asia reported.

Excess of loss pricing showing “significant” reductions and pro rata commission terms were largely “as expiring”, notes Willis Re.

Australian property reinsurers fared no better than elsewhere in the region as the market softening continued with rate of reductions dependent on perceived programme price adequacy and level of first event retentions.

Reinsurers reportedly, however, showed a “limited appetite” for rate reductions on loss affected layers.

“Some reinsurers [are] starting to reduce capacity where rates are perceived to be inadequate; although long-term relationships are still considered important and prevail in the majority, both buyers and reinsurers are increasingly prepared to disengage if perceived mutually beneficial terms cannot be realised,” states the report.

In this large and mature market, there remains “plentiful” capacity from both traditional sources and insurance-linked securities markets, according to Willis Re.

As a consequence, buyers are not surprisingly keen to stretch terms and conditions and explore multi-year capacity options.

In its review of the casualty reinsurance market, the report focuses on the Australian and Korean markets for this region.

The broker reports a continued softening across most lines of Australian casualty business, with a reduced rate of softening on some loss-affected treaties.

“Treaty breadth of cover remains an important consideration for buyers, along with relaxation of administrative burdens. Although long-term relationships are still considered important and prevail in the majority, both buyers and reinsurers are increasingly prepared to disengage if perceived mutually beneficial terms cannot be realised,” states Willis Re.

The broker notes that systemic and accumulation risks continue to be of concern for buyers and reinsurers’ appetite for such risks seem to be broadening.

Capacity remains abundant for all Korean casualty lines as historical performance remains good. The broker adds that “sizeable” risk-adjusted reductions were achieved across the market. Original motor pricing, however, increased following amendments to local pricing regulations.

International risk managers will be delighted to hear that, on a global basis, the reinsurance market is still making a profit and remains stubbornly soft, or flat at best. Willis Re reports that reinsurers had their hopes “dashed” again at the year-end renewal.

Commenting on the analysis, John Cavanagh, global CEO of Willis Re, said: “Despite a 50% increase in insured losses from natural catastrophes during 2016, the global reinsurance industry achieved profitable results for the third quarter. Barring any last-minute disasters, 2016 remains on track to close out another profitable full year. Reinsurers, eager for more widespread rating stabilisation, have had their hopes dashed yet again, thanks to profitable results allied with continued capital oversupply from both traditional reinsurers and capital markets.

“While there are signs that reinsurers are not prepared to be as flexible as in earlier years, many buyers have yet again managed to achieve improved terms. Sizeable reductions have been obtained on international business,” he added.

Mr Cavanagh said that this year it was more difficult to work out “granular” market trends because of a greater “fragmentation” of market pricing by territory, class and specifically, by client.

He said major reinsurers are taking stronger client-centric approaches. This is leading to “superficially inconsistent” underwriting at a market level, which is misleading, added Mr Cavanagh.

“Most major reinsurers in the current pricing environment are applying increasingly sophisticated and active portfolio management strategies, including the use of third-party capital partners, which are generating less generalised and more client-specific outcomes,” he said.

“Greater clarity about the regulatory treatment of reinsurance solutions is helping to drive increased reinsurance buying in both life and non-life classes. While capital efficiency, both prospective and retrospective, remains a key driver of reinsurance purchasing, demand for earnings protection cover continues to increase and offers growth opportunities for some reinsurers,” continued Mr Cavanagh.