The June/July 2016 renewal season has seen a continuation in market softening, though a slowing in the magnitude of rate reductions is increasingly apparent, according to the renewals report from Willis Re.
Capacity withdrawals where some reinsurers deem pricing to be inadequate is also evident. However, considerable pricing variation by class and territory persists. As yet, any indication of widespread pricing stabilisation remains elusive.
John Cavanagh, Global CEO of Willis Re, said: “Capacity remains abundant and continues to overhang the market in virtually all classes and regions. With no material impact from catastrophe loss activity now for the last few years, rating pressure persists. So far in 2016, only one major catastrophe loss – the Fort McMurray fires – will produce any meaningful catastrophe claims for reinsurers.
“Any relief that pricing may be nearing the bottom of the cycle is counterbalanced by concern over how and when rates might start to increase, even modestly, on a wider basis. The alternative is a market that faces a number of years bumping along at current levels earning very modest returns.”
The Willis Re report also highlights that in the face of continued pricing and interest rate pressure, cost control measures remain a priority for many reinsurers.
“The drive to achieve market efficiencies and cost reductions is picking up pace, particularly in the London market,” Cavanagh said. “The UK’s decision to leave the EU provides an additional dynamic, with the exact implications for future policy and regulation unknown.”
The report also notes that reinsurers are becoming acutely aware of the profound change that FinTech applications will drive in the primary insurance markets. Far sighted reinsurers are also seriously considering the new opportunities FinTech applications may provide for their own activities.
Ultimately however, concern persists over how much longer prior year reserve releases can sustain reinsurers’ results and how differences in individual companies’ historic reserving practices will be exposed.
“In the current environment, the balance of risk retention versus return is more acute than ever. The ability of individual reinsurers to manage this crucial dynamic will have a profound impact on the shape of the market to emerge, if or when the rating environment finally offers some relief,” Cavanagh said.