Market Overview

Reinsurance Pricing Floor Remains Elusive at Jan 1 2016 Renewals - Willis Re 1st View Report

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LONDON, Jan. 04, 2016 (GLOBE NEWSWIRE) -- Despite the signs of pricing stabilization in peak property catastrophe zones at the June/July 2015 renewals, the forecasts for a "softening in the softening" in reinsurance pricing have proved illusory, according to the latest 1st View Renewals Report from Willis Re, the reinsurance division of global risk advisory, re/insurance broking, and human capital and benefits firm Willis Group Holdings plc (NYSE: WSH).

According to the report, rates have continued to decline across the majority of markets, with few examples of any slowdown in pricing deterioration:

  • Reinsurers have faced difficult renewal dynamics in the global specialty markets, especially within the aviation and energy sectors, as large losses and reductions in original rates have yet to dissuade the inflow of additional capacity.
     
  • Casualty markets have also not offered reinsurers any relief from further rate reductions, despite an increase in adverse results across a number of non-motor classes.
     
  • Risk adjusted rate reductions continue for property catastrophe pricing, although there has been a notable slowdown in rate reductions for high layer US property catastrophe covers where the ILS markets, which have played a major role in driving down pricing in the peak zones, have taken a more disciplined approach.

Underpinning these dynamics, despite signs that some insurers are utilizing rate reductions to buy more reinsurance, some of the larger firms continue to increase their reinsurance retentions. While improved risk management is largely driving this trend, the report warns of the possibility that increased retentions are also a result of some potentially misplaced optimism around underwriting results as primary rates continue to reduce.

The negative outlook for investment income also remains, with concern around the dislocation in the high yield bond market a potential precursor for further turmoil in bond markets as interest rates rise. For most reinsurers, exposure to high yield bonds is modest and manageable. Yet for any significant market event, the report notes that there are bound to be outliers.

The M&A trend also continues unabated, with the increasing role of Asian-sourced capital helping to drive valuations, as is the role of buyers looking to buy scale and market relevance as deals drive more deals.

John Cavanagh, Global CEO of Willis Re, said: "The January renewals have unfortunately confounded the hopes of commentators that the market was reaching a pricing floor. However, as reinsurers look to close their 2015 accounts, most will likely report reasonable headline results. But looks flatter to deceive. As the Willis Reinsurance Index for the first half of 2015 demonstrated, underlying RoEs of reinsurers are at an extremely low 5.1% after adjusting for reserve releases and abnormally low catastrophe losses. 2015's full year analysis is likely to show further reductions as under-reserving issues start to appear at both a primary company and reinsurer level.

"But amidst the challenging environment, two positive developments stand out. First, the recent announcement by Lloyd's that it plans to launch a trading index to help stimulate the development of a secondary trading market and ‘attract the interest of the wider capital markets'.

"Second, the announcement by Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, of an industry led task force. Chaired by former New York City Mayor, Michael Bloomberg, it will develop company disclosures for investors to assess physical, liability and transitional risks from climate change and related policies.

"Quantification and disclosure of insurance risk has helped drive reinsurance demand for the last 25 years. These new initiatives are primed to do the same for the global business community: drive demand."

Download the report: The full Willis Re 1st View report includes specific commentary on key trends throughout the world's major reinsurance classes and regions.

About Willis Re
One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit www.willisre.com.

About Willis
Willis Group Holdings plc is a global risk advisory, re/insurance broking, and human capital and benefits firm. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world's leading authorities on analytics, modeling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website, www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.

 

Media: Laura Molloy +44 20 3124 8555 Email: Laura.Molloy@willis.com Investors: Matthew J. Rohrmann +1 212 915 8180 Email: Matt.Rohrmann@Willis.com

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