December 24, 2024
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Renewals show change in reinsurance market

As large-scale multi-line insurers enter a period of consolidation following the significant drive to rationalise long-term strategic reinsurance purchasing, recent renewal activity suggests reinsurers are now increasingly resisting shorter-term aggressive buying strategies, according to Nick Frankland, CEO of EMEA operations and Chris Klein, head of EMEA Strategy Management at Guy Carpenter.

“In January 2015 we saw the first major wave of centralised reinsurance purchasing,” said Frankland. “The buying decision has now been elevated to the executive level, with reinsurance viewed as part of longer-term, strategic decision making. Large-scale insurers are now consolidating their positions, operating much leaner reinsurance panels geared towards improving counterparty credit risk and developing more expansive trading partnerships with key reinsurers.”

This rationalisation has in part led to a continuing reduction in reinsurance buying, despite the current low rate levels. “Given where rates currently are, you would expect insurers to take full advantage,” Frankland explains. “However, we are dealing with conflicting forces and while pricing is highly attractive at present, insurers are facing difficult market conditions and chronically weak investment returns, putting immense pressure on earnings.”

From a buying perspective, while recent years have been characterized by double-digit rate reductions and continual pressure on terms and conditions, there are now clear signs that reinsurers are more willing to stand firm in the face of aggressive buying tactics.

“The mid-year U.S. renewals,” Klein states, “experienced a notable moderation in property price decreases, with falls in risk-adjusted rates in the mid- to low-single digit range, as well as a reduction in capacity authorization. Reinsurers, particularly on the catastrophe side, were more willing to reduce or even decline participation where they deemed buyer demands too great.”

 

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