Reinsurance rates expected to remain soft, but demand to growReprints
Reinsurance buyers benefitted from ample capacity and willingness of reinsurers to provide favorable terms and conditions at the Jan. 1 reinsurance renewals, according to recent reports from two reinsurance brokerages.
Despite signs of rate stabilization for peak catastrophe zones at the June and July renewals, forecasts of “a 'softening in the softening' at the January 2016 renewal season have proved illusory in all but a few cases,” Willis Re, the reinsurance arm of Willis Group Holdings P.L.C., said in its 1st Review report, published Monday.
Willis Re said that while a disciplined approach by many insurance-linked securities markets, which cannot diversify as much as can many traditional reinsurers, led to a slowdown in the pace of rate declines for U.S. property excess-of-loss coverages — particularly on higher layers — this trend was not so widely seen outside of the United States where ILS markets currently have less penetration.
Willis Re added that in some speciality lines rates continued to soften as large losses and reductions in original rates did not dissuade new capacity from entering those lines of business.
And in casualty reinsurance, an increase in adverse results in non-auto lines has not yet started to impact pricing, Willis Re said.
Last week, in its Reinsurance Market Outlook report, Aon Benfield, the reinsurance brokerage arm of London-based Aon P.L.C., said that at the Jan. 1 renewal “reinstatement terms improved, more multi-year coverage was available, and reinsurers worked with insurers to develop unique structures and support new insurance strategies and lines of business.”
Aon Benfield said that for 2015 global reinsurance capacity was about $565 billion, with alternative capital making up about 12% — or $69 billion — of that total.
Aon Benfield said it expected to see an uptick in demand for reinsurance in 2016.
This will be driven by demand for coverage for classes such as U.S. mortgage and credit risk and life and annuity risk, and the shift to the private market of some risks that until now have been backed by governments, among other factors.