Reinsurance pricing drops at June 1 renewals

A reinsurance market awash in abundant capacity saw rate declines continue at June 1 renewals, JLT Re, the reinsurance arm of Jardine Lloyd Thompson Group P.L.C., said Thursday.

The rate of those reductions accelerated, according to the company, whose Risk-Adjusted Florida Property-Catastrophe ROL Index fell by 5.1% this year, more than last year’s 3.1% decrease (within a range of zero to negative 10%).

“Excess capacity and strong competition amongst traditional and insurance-linked securities markets … were once again instrumental in driving rates down,” JLT Re said in a statement, adding that ILS markets showed “renewed vigor” in trying to deploy capital and increase their participation.

These most recent market declines bring pricing of Florida business down 40% from 2012 levels and only 10% above previous market cycle lows seen in 1999 and 2000, according to JLT.

In the retrocession markets, plentiful capacity combined with a lack of significant losses to drive down rates for retrocession placements by mid-single digit levels generally, JLT Re said, bringing market conditions to their most competitive level since the late 1990s and early 2000s.

Retrocession demand, meanwhile, remained strong as cedents, taking advantage of market conditions, lowered retentions and added additional layers of coverage at June 1 renewals.

The supply-side imbalance proved the main market force at the renewals. “Excess sector capital continues to drive the market,” David Flandro, New York-based global head of analytics for JLT Re, said in the statement. “Surplus capacity is enabling cedents to negotiate discounts to expiring reinsurance rates,” although June 1 renewals were also affected by cedent performance and size, he added.