Reinsurance rate increases limited: ReportsReprints
Reinsurance price increases for property catastrophe programs in the United States averaged between 5% and 10% for loss-hit accounts as plentiful alternative capital helped suppress bigger rate hikes, according to a report issued Tuesday by Willis Re, the reinsurance brokerage unit of Willis Towers Watson P.L.C.
The January 1, 2018, renewals were “orderly” despite the substantial losses incurred from third-quarter hurricanes and earthquakes, according to the report, which put 2017 catastrophe losses at $136 billion and said the year “is proving to be one of the worst loss years on record for the global (insurance and reinsurance) market.”
Meanwhile, JLT Re said its Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line Index rose by 4.8% at Jan. 1, 2018, the Jardine Lloyd Thompson Group P.L.C. unit said in a statement Tuesday.
The largest increases were recorded in the U.S., according to JLT, with rates renewing up 10% to 20% for loss-affected business and flat to up 5% for loss-free programs. More benign loss activity in Europe and Asia typically lead to flat to moderately up renewals international property-catastrophe business.
Rates for retrocessional catastrophe – the reinsurance that reinsurers buy for their own books - programs were generally up by between 10% and 20% on a risk-adjusted basis, JLT said “despite initial indications that markets would push for more.”
While some reinsurers sought larger increases, price increases were limited due to several factors: the 2017 losses were spread over several events, a large portion of the losses were retained in the primary market and significant growth in the insurance-linked securities market, which represents about $75 billion in capacity compared with $24 billion in 2011, the Willis report said.
“The largest influence in dampening a change in pricing was alternative capital sources reinvesting to maintain or increase participations; consequently, capacity remains plentiful,” the report said.
“By the middle of Q4, it became apparent that the ILS market was comfortably weathering its first major test for a number of funds, with investors prepared to recapitalize to make good both lost and illiquid trapped capital,” according to the report.
The changing market dynamics resulted in more prolonged negotiations.
In the United States, “firm orders came in late and well below most reinsurers’ expectations.”
On catastrophe programs that had not suffered losses, renewals ranged from flat to increases of 7.5%, the reported stated.
U.S. casualty reinsurance lines also saw increases for loss-hit accounts, but some casualty programs continued to see rate decreases, according to the report.
In the U.K. property market, “Some strong reinsurer messaging early in the renewal season resulted in longer negotiations at the price discovery phase,” the report said, with renewals averaging flat to up 5%, the report said.