Reinsurers See Rate Stabilization on the Horizon

North American reinsurers may soon see some rate stabilization after a prolonged period of declining premium rates, as they deal with a supply-demand imbalance that has weighed on returns, according to executives at the 2016 Bermuda Reinsurance Conference co-hosted by S&P Global Ratings and PwC Bermuda.

“We are pleased with the stabilizing rate environment,” said Kean Driscoll, chief executive officer of Validus Reinsurance Ltd.

Joseph Brandon, executive vice president of Alleghany Corp., agreed with Driscoll: “On the primary side, the rate declines in property are much steeper than in reinsurance. The pace is slowing. Casualty lines have seen minor rate increases.”

Kevin O’Donnell, president and CEO at RenaissanceRe Holdings Ltd., believes actual results have been “better than expected” for the industry: “Overall, catastrophe losses have been low and we’ve seen diminishing rate reductions.”

“I think the death of the reinsurance market has been greatly exaggerated, as Mark Twain would say,” Brandon said. He added that the reinsurance market has survived more adverse periods — particularly in the late-1990s and early 2000s.

Nevertheless, the “softer for longer” reinsurance pricing environment is proving to be deeper and longer than many market participants anticipated a few years ago. This, Brandon said, will continue to hurt reinsurers’ returns.

“Anybody who says they can make 15 percent through the cycle is playing a big game of pretend; it’s simply not true,” he said. “Serious companies have assumed that the current environment is going to persist for a while and have adjusted their views.”

Although returns have been lower than in the past, they’re still attractive compared with many other industries, said O’Donnell. Moreover, reinsurers have largely avoided falling into the trap of overextending their risk exposures to chase returns, he said.

“Looking at 2017, I think it’s going to be a tough year, but I think the reinsurance market is poised for success,” he said.

He said that while companies fight for market share, it’s important for the industry as a whole to expand the market through nascent lines of business such as cyber-risk protection.

“I don’t think we as an industry speak with as common a voice as we need to,” O’Donnell said.

Topics Reinsurance Market