Reinsurance rate declines accelerate across the board

Reinsurance pricing fell almost universally at the April renewals, a report by Willis Re has found, with the downward trend seen at January 1 continuing to accelerate.

Willis Re found that rates fell by as much as 20 percent in April, as an oversupply of reinsurance capacity continues to chase muted demand.

Rates on unaffected US and Indian property lines were down by up to 20 percent; while unaffected Japanese quake business was down up to 17.5 percent, Willis Re found.

The broker says that rising levels of third party capital and the positive 2013 results of market incumbents have played their part in the continued softening.

The report found that many insurers continue to seek out traditional sources of reinsurance, rather than ILS and convergence capacity, adding that they “continue to remain cautious” about such capital sources.

Such sentiments have helped to drive a still more competitive dynamic in the traditional reinsurance space.

In response to market conditions, traditional underwriters have sought to “optimise the use of their client relationships, capacity and technical underwriting capability to protect and, in some cases, increase their shares” in the face of competition from within the traditional space and from new convergence capital.

Reinsurers have also responded to conditions by entering into share buybacks and special dividends—with Bermuda players particularly active in this regard—with strong current stock valuations helping companies provide existing investors with attractive exit strategies.

Commenting on the renewals, John Cavanagh, CEO of Willis Re, says: “The 1 April renewals have seen a softening of rates across nearly all classes and geographies which, in turn, has allowed buyers to achieve substantial savings in the cost of their reinsurance protections.”

“Some buyers took the opportunity to buy more cover and some renewals saw an expansion in terms and conditions. The overriding target for most buyers, however, was to achieve price reductions or an increase in ceding commissions.”

“Restructuring and consolidation of covers by some of the larger buyers continues to be a trend along with M&A consolidation causing further compression in price in favour of the buyer.”

Peter Hearn, chairman of Willis Re, concurred with Cavanagh’s assessment, adding: “Comfortable though this situation may be for many buyers, the nagging concern remains as to timing. When will a lower cost of reinsurance feed through in lower original rates and put primary companies’ margins back under pressure?”