Willis Re sheds light on what's driving June and July renewals

Willis Re sheds light on what's driving June and July renewals | Insurance Business

Willis Re sheds light on what

Insurers were able to secure sufficient reinsurance capacity at the June 01 and July 01 renewals, according to a new report from Willis Re, the reinsurance division of Willis Towers Watson. Capital levels were only 5% lower than at the end of 2019, a “remarkable recovery” Willis Re attributed to investors’ appetite to support additional capital and reinsurers’ “prudent risk and cost management.” By comparison, capital levels at the end of March were 30% lower than at the end of December.

The “longstanding underlying issues of rate inadequacy” continued to fuel rate adjustments in many classes and geographies, led by the US treaty market, Willis Re said.

“Double-digit risk-adjusted reinsurance price increases were seen for loss-hit catastrophe treaties and ranged from +10% to +20% for the programs of Australian and Latin American insurers, to as much as +35% in the Florida homeowner renewals,” Willis Re said. “Rate increases were prevalent but much less dramatic for loss-free catastrophe treaties with limited peak catastrophe exposure.”

For casualty treaties, there were rate rises for excess of loss treaties with loss emergence. US healthcare liability, specifically, saw increases as high as 40%, “but those long-tail lines of business with stable prior-year results renewed as expiring or with modest price increases,” Willis Re said. Pro-rata commissions stayed flat or fell by up to 2.5 percentage points, driven largely by the extent of pricing changes on original policies.

Reinsurers are recognising that COVID-19 losses – currently reported at around $7 billion – may take years to settle, which will spread out reserving over many quarters, Willis Re said. The impacts of pandemic loss on the asset and liability sides of the market’s balance sheet are highly correlated, Willis Re said. As a result, investors have remained “cautious and selective,” withdrawing capital from some ILS funds and favoring better-performing funds and rated reinsurers.

“The global reinsurance market was not capital-constrained during the recent renewals, but has shown a greater level of prudence with an increased focus on underwriting profitability,” said James Kent, global CEO of Willis Re. “More persistent hardening is evident largely across the board, but reinsurers continue to exercise clear differentiation between clients, lines of business, and territories. The value of sustained relationships has once again been proved.”