No end to soft market in sight just yet

No end to the current soft market is yet in sight, James Kent, president of Willis Re North America, told PCI Today, and he believes this will be a major talking point at this week’s conference in Dallas.

“There are a number of general themes for the market at the moment, including recent M&A activity, the shifting dynamic of direct markets towards the broker business, and a reduction in the scale of reserve releases,” Kent said.

But the soft market will be the major theme for discussion—especially as the reinsurance market continued to soften during 2016.

Kent pointed out that because PCI is held just a few weeks before the main January 1 renewal season, clients will be reviewing or assessing what pricing they should expect. While he stressed that Willis Re doesn’t give forward-looking pricing on a public basis, the company does have in-depth conversations with its clients.

“What was loud and clear at recent industry conferences was that there’s a softening of the softening, as it were,” Kent said.

This will now be exacerbated by a series of loss events this year, he said.

“While Hurricane Matthew isn’t going to be a large reinsurance event, or a large industry event, it is just another nick that insurers and reinsurers will have to absorb in terms of earnings,” Kent said.

“In Q4 you look at Matthew, which is both a US and an international loss, as the Caribbean business is largely reinsured by the international market, and it is going to impact some regional property reinsurance programmes. Consequently it will have an impact on some earnings.

“When you add up the Texas hail and flood losses, Canadian wildfire losses, Midwest storms and now Matthew, while the year is manageable from an overall US cat loss perspective, the impact on earnings for some reinsurers will be higher than in recent years,” he said.

Kent added that it is impossible to determine whether the industry has yet reached the bottom on pricing, but he said it seems unlikely pricing could drop much further, particularly on peak zone cat risk and large casualty placements.

Asked what it would take to kick the market out of this period of softening, Kent said that it is hard to determine if even a big loss would be enough to move things in its own right.

“At one point Matthew was a category 4 storm heading straight for Miami and Palm Beach—but even then you can’t be unconditional and say that that would have changed the cat market on its own.

“Generally if you have property-cat losses at a time when the market has also run short of reserve releases and accident year combined ratios are exposed to the true state of the market, a pricing correction will occur.

“A cat event might change it, but for the time being I think things will bumble along as it is—the required catalyst to change things hasn’t happened yet.”