Reinsurance pricing continued to fall almost across the board at the 1st April renewals, according to the 1st View renewals report from Willis Re.
Trends observed during the 1st January renewals continued and showed clear signs of acceleration. Positive 2013 results for traditional reinsurers and a seemingly unabated supply of capital from third party investors have added further to the oversupply of reinsurance capacity chasing muted demand.
John Cavanagh, CEO of Willis Re, comments “The 1st 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.”
Many primary insurance company buyers, most noticeably international and regional US companies, continue to remain cautious in their use of insurance-linked securities(ILS) and collateralized markets.
Major traditional reinsurers have worked hard to optimize the use of their client relationships, capacity and technical underwriting capability to protect and, in some cases, increase their shares to help withstand the challenges of competing with the ILS and collateralized markets.
These reinsurers have also stepped up efforts to manage their capital through increased share buy backs, special dividends and other techniques. In spite of the softening rate outlook, stock valuations of quoted companies remain attractively high. In fact, a number of companies are taking advantage through public share offerings to provide existing investors with an exit strategy.
Peter Hearn, chairman of Willis Re, said “The current reinsurance market clearly favours the buyer. The cost of reinsurance is falling much faster than original rates in many classes and territories. 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?”
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