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Reinsurance rates fall at April 1 renewals

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Reinsurance rates fell for the fourth consecutive year at the April 1, 2016, renewals, according to a report issued Friday by Willis Towers Watson P.L.C.’s Willis Re unit.

But Willis Re said in its “1st View Reinsurance Renewals” report that “overall price reduction at April 1 were “marginally less” than those attained a year earlier, and that any broadening of terms and conditions “remained largely stable.”

“It is also becoming increasingly evident that while most reinsurers are accommodating client requests, many are now at the point where they are no longer prepared to grant any further concessions, irrespective of relationship considerations,” said Willis Re in the report.

The report said demand for reinsurance also appears to be picking up.

“The underlying reasons for the reversal in reinsurance buying strategies are distinctive to each client,” said John Cavanagh, global CEO of Willis Re, in a statement accompanying the report. “But increased regulation, which has promoted a more holistic view of risk and reward, allied with shareholder pressure to improve ROE return on equity by reducing the equity element of the calculation, are clearly two overall drivers.”

But Willis Re cautioned in the report that “it is premature to conclude that the current market cycle is bottoming out. The underlying imbalance of capital supply and muted demand allied to reinsurers’ largely satisfactory 2015 results continues to hang over the market.”

Even in the current low-interest-rate environment and “difficulty in achieving top-line growth, most reinsurers have reported marginally lower but still acceptable full-year results for 2015,” said the report. “Yet again, the twin saviors have been prior-year reserve releases and the lack of major losses linked to active capital management strategies.”

“Ultimately, buyers are still reaping the rewards of competitive conditions, and reinsurers will need another below-average loss year to produce acceptable results in the face of a tough 2016. But the apparent uptick in demand is certainly a positive sign,” said Mr. Cavanagh in his statement.