‘Tangible pricing momentum’ at reinsurance renewals outstripped by primary markets, says Willis Re

Rising reinsurance treaty terms and conditions are being outstripped by more significant changes in primary markets, according to Willis Re. “The impact of global commercial carriers and Lloyd’s repositioning their portfolios, in terms of price, conditions and capacity, is flowing through into most territories and classes, with an acceleration in the primary market from that previously observed,” states the reinsurer in its 1st View Renewals Report. It points out that after a hesitant start in January and a slightly more robust response in April, the 1 June and 1 July reinsurance renewal season has witnessed “tangible pricing momentum”, with most territories and classes seeing price increases and some tightening of terms and conditions. “Strengthening primary insurance market conditions underpinned improvements to reinsurance prices, terms and conditions at the 1 June and 1 July 2019 renewals,” it states. Regional carriers are following this trend and showing no signs of seeking to undermine these movements, it adds. Willis Re notes that the underlying primary improvements may not be matched by a tightening of reinsurance terms and conditions. "In several cases, reinsurers are relying more on improvements in original underwriting than on treaty terms and conditions," the report says. Adding: “This is particularly pertinent in segments and/or with clients who are taking the appropriate action to enhance profitability.” Non-marine retrocession coverage has seen the greatest price increases of up to 35% for loss-hit programmes. Loss-hit Florida and US-nationwide property catastrophe and per-risk exposures saw prices rise by up to 25%. “However, ‘market-standard’ price increases have been displaced by reinsurers’ more discerning approach, creating a wide pricing disparity between different accounts,” says the report. In casualty lines, pro rata treaty commissions typically declined, notwithstanding improvements in the underlying terms and conditions for most classes, although the same dynamic of superior pricing for the better-performing companies was seen in casualty lines too, Willis Re explains. It adds that worsening loss ratios and declining reserve redundancy across a number of lines point to the need for continued momentum to ensure sustainable returns. James Kent, global CEO of Willis Re, said: “Recent smaller catastrophe losses from perils that are less well modelled, allied to continued loss creep from larger events, are challenging parts of the market and causing some reinsurers to revisit their underwriting models. This was most notable in the Florida renewals, where pricing took an upward direction, particularly for cedants seeking new limit.” He added: “Retrocession buyers have also felt the impact of the market’s changing appetite, putting the business models of some buyers under scrutiny as ILS capacity in particular has pulled back – and boosting the opportunity for traditional reinsurance carriers who are less reliant on retrocession capacity. Overall, it remains a functional and logical reinsurance market with preferred pricing and capacity for cedants viewed as superior partners.”

‘Tangible pricing momentum’ at reinsurance renewals outstripped by primary markets, says Willis Re

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