Reinsurers Anticipate Another Challenging Year, Seek Price Stabilization: Willis Re

Despite a 50 percent increase in insured losses from natural catastrophes during 2016, the global reinsurance industry achieved profitable results for the third quarter and remains on track to close out another profitable full year, according to a report published by Willis Re.

“While there are signs that reinsurers are not prepared to be as flexible as in earlier years, many buyers have yet again managed to achieve improved terms,” said the report titled “Willis Re 1st View, January 1, 2017 – Struggling to Stabilize.”

“Reinsurers, eager for more widespread rating stabilization, have had their hopes dashed yet again, thanks to profitable results allied with continued capital oversupply from both traditional reinsurers and capital markets,” said a forward to the report, authored by John Cavanagh, global CEO of Willis Re.

Key findings from the report include:

While sizeable reductions have been obtained on international business, in the U.S. there are signs of more stability, driven by the capital-intensive nature of some U.S. classes and the very significant improvements in terms.

• Capital markets have been active, leading to a further compression in margins, particularly on recent catastrophe bond issuances but also on a wider range of collateralized placements.
• Reinsurers are taking a stronger client-centric approach to managing their portfolios in the current market; this is leading to superficially inconsistent underwriting at a market level and fragmentation of pricing trends.
• The trend of M&A in the industry continues but the pace of consolidation has slowed when compared to 2015. With the uncertainties that consolidation brings, many buyers have been more cautious about severing relationships with longstanding reinsurance partners.
• Insurtech is emerging as a major market trend with supporters of disruptive insurtech solutions coming from capital markets as well as from major reinsurers seeking access to original risk.

“While reinsurers are still able to report profitable results, despite the underlying issues they face, the situation for many primary companies is much tougher,” said Cavanagh.

“With the January 1 renewal season setting the tone for 2017, reinsurers can only look forward to another demanding year, where luck will play an even larger role in determining their final results,” Cavanagh affirmed.