Despite the recent catastrophe loss estimates of about $136 billion make 2017 one of the worst loss years on record for the global reinsurance and insurance market, pricing corrections have been more “orderly” than in previous years that had high catastrophe losses as alternative capital growth continued and primary insurers increased retentions, according to a renewals report from Willis Re, the reinsurance division of Willis Towers Watson.
JLT Re’s Retrospective Renewal Report also said reinsurance rates did not increase by as much as expected in the year-end renewals as many reinsurers conceded ground to clients as the date neared, particularly in non-loss affected areas.
Willis Re said, property renewals for U.S. markets at Jan.1 showed average rate increases of 5% to 10% for catastrophe loss-hit areas and rates ranging from flat to up 7% for loss-free areas, according to a renewals report from Willis Re, the reinsurance division of Willis Towers Watson. In the Caribbean property market, catastrophe loss-hit areas saw rate increases of 20% to 40%. Canada’s property reinsurance market saw rates rise 10% to 30% in catastrophe-hit areas.
“Reinsurers’ desire to push up prices was further frustrated by the latest catastrophe model changes, which reduced technical expected losses as well as buyers with net retained losses holding a firm line on increases,’’ said Willis Re Report.
While price increases were most evident on loss affected layers, in many instances buyers sought to distribute such increases throughout programs resulting in price changes on non-loss impacted layers,” the report said.
Willis Re added “the largest influence in dampening a change in pricing was alternative capital sources reinvesting to maintain or increase participation; consequently capacity remains plentiful” in U.S. property reinsurance.
For reinsurance buyers the global reinsurance industry in 2017 “is significantly different” than those big prior loss years as traditional reinsurers remain strongly capitalised while being supplemented by continued growth in insurance-linked securities capacity that totals about $75 billion, compared with $24 billion in 2011, $10 billion in 2005 and $4 billion in 2001, said James Kent, global chief executive officer, Willis Re.
The JLT Re noted that after five consecutive years of falling rates, global property-catastrophe reinsurance experienced upward pricing pressure at 1 January, with significant variances across regions. This result was driven in large part by higher loss experience, with the sector suffering its most expensive catastrophe loss year on record in 2017. Insured catastrophe losses exceeded $140 billion for the first time ever in real terms.
Ed Hochberg, chief executive, JLT Re in North America, said: “Property-catastrophe rate increases were most pronounced in regions impacted by loss activity, while low single-digit rises or even flat outcomes were more typical for programmes without significant losses. Although reinsurers sought to stem margin compression with more substantial rate rises at 1 January 2018, many conceded ground to clients as the date neared, particularly in non-loss affected areas.”
Hochberg noted that JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index rose by 4.8 percent at 1 January 2018, with levels still below those seen in 2016. The highest increases were recorded in the US, with rates renewing flat to up 5 percent for loss-free programmes and up 10 percent to 20 percent for loss-affected business.
Kent added catastrophe losses in 2017 were “split over a number of different events,” affecting the impact on Jan. 1 renewals. He said also “a large tranche of the losses were retained in the primary market.”
He noted a continued supply of capital “has produced a different set of dynamics over the current renewal season than reinsurers might have traditionally anticipated,” and “although the losses have stopped a further downward movement in risk-adjusted rates in most markets and classes, the continued supply of capital has helped curtail widespread increases in risk-adjusted rates particularly on loss free portfolios.”
According to Willis Re, the global casualty business is “too diverse to provide any all-encompassing description of market forces that has universal application for all sub classes in all territories,” but for the past several years “global casualty business, which was defined by compound improvements in terms and conditions for reinsurance buyers, is now slowing down and, in several key classes and territories, reversing.
“We are hesitant to refer to 2017 as the nadir of reinsurance pricing in all long-tail classes, but at this stage, it appears to be a reasonable description,’’ said Willis Report.
U.S. casualty reinsurance pricing at Jan. 1 ranges from down 10% to up 10% for professional liability. Motor liability pricing was flat, and general third-party liability pricing ranged from down 5% to up 5%, with no loss emergence. General third-party liability was flat to up 15% with loss emergence.
In Europe, general third-party liability pricing was flat to up 7.5% with no loss emergence, and flat to up 25% with loss emergence.