Insurance buyers to benefit from decline in reinsurance rates: Analyst

Lower reinsurance rates could ultimately prove to be good news for insurance buyers, according to a new report from Cliff Gallant, San Francisco-based analyst with Nomura Securities.

January reinsurance renewals experienced low-double-digit declines across catastrophe and other classes and risks, according to “Reinsurance Renewal Update.” Mr. Gallant cited Guy Carpenter & Co. L.L.C.’s Property Catastrophe Rate-On-Line index as being down 11%, within Nomura’s published expectations for a 5% to 15% decrease, the report said.

“Less expensive reinsurance is good for the economics of primary insurers, but we expect that much of the savings will get passed on to insurance buyers as the fight for market share grows” said the report.

“Widely watched indices have reported primary commercial rates up 0–3% in recent months, but we expect a turn to the negative in the first half of 2015.”

In addition to the broad declines, the report stated that “broad reductions in terms and conditions are also being widely reported.”

Despite the soft market, Nomura expects reinsurers to post solid fourth quarter earnings due to benign catastrophe activity.

Mr. Gallant also noted growing pressure for merger and acquisitions.

“Throughout the industry, but in particular for reinsurers, the pressure to consolidate is mounting, as already evidenced by recent headlines.”