Retro market prices softening with capacity shortage emerging, says Willis Re

Continuing trend of price softening and capacity shortage could lead to reinsurers pulling back on unattractively priced lines

Insurance News

By Gabriel Olano

As non-marine retrocession rate movements at mid-year renewals kept up the softening trend witnessed during the April renewal period, majority of reinsurers have deployed their capital, leading to a capacity shortage, according to global reinsurance brokerage Willis Re.
Non-marine retrocession rates fell by 10% for both loss free accounts and catastrophe loss free accounts at the past June/July renewal season, while loss hit accounts experienced rate hikes of +15%.
Willis Re noted that year-on-year, price reductions in the global non-marine retrocession market were aligned with reductions present at the January and April renewals.
The surplus reinsurance capacity from both traditional and alternative sources contribute to continuing rate declines and market softening in the global non-marine retrocession sector. This is further enhanced by the prolonged benign loss environment.
If the market continues to soften, a demand issue could affect the non-marine retrocessional market in the future, as reinsurers and ILS players refuse to take on high-risk, low-return businesses. However, this is not likely to be an issue in the short term.
Reinsurers and ILS funds/managers are likely to pull back on lines that don’t have attractive prices, and this trend is affecting both the reinsurance and non-marine retrocession marketplaces.
The benign loss environment and rate declines are forecasted to continue further into 2016, and it might be worthy to note the reaction of the non-marine retrocession market. It also remains to be seen if business lines outside of the US may encounter a capacity shortage, as well.

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