Rates did not harden by as much as hoped in 1/1 renewals

Reinsurance rates did not increase by as much as expected in the year-end renewals as many reinsurers conceded ground to clients as the date neared, particularly in non-loss affected areas, according to JLT Re’s Retrospective Renewal Report.

The report noted that after five consecutive years of falling rates, global property-catastrophe reinsurance experienced upward pricing pressure at 1 January, with significant variances across regions. This result was driven in large part by higher loss experience, with the sector suffering its most expensive catastrophe loss year on record in 2017. Insured catastrophe losses exceeded $140 billion for the first time ever in real terms.

Ed Hochberg, chief executive, JLT Re in North America, said: “Property-catastrophe rate increases were most pronounced in regions impacted by loss activity, while low single-digit rises or even flat outcomes were more typical for programmes without significant losses. Although reinsurers sought to stem margin compression with more substantial rate rises at 1 January 2018, many conceded ground to clients as the date neared, particularly in non-loss affected areas.”

Hochberg noted that JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index rose by 4.8 percent at 1 January 2018, with levels still below those seen in 2016. The highest increases were recorded in the US, with rates renewing flat to up 5 percent for loss-free programmes and up 10 percent to 20 percent for loss-affected business.

Flat to moderately up renewals were typical for international property-catastrophe business, reflecting more benign loss activity in Europe and Asia. Even with these increases, the cost of property protection remains competitive with global property-catastrophe pricing approximately 30 percent below 2013 levels.

Global market property programmes, such as retrocession and direct and facultative (D&F), typically saw higher rate increases at 1 January 2018, although these also fell below early market expectations.

Bradley Maltese, Deputy CEO of UK & Europe, JLT Re, stated: “Despite initial indications that markets would push for more, rates for retrocession catastrophe programmes were generally up by between 10 percent and 20 percent on a risk-adjusted basis, with event-based programmes falling towards the lower end of this range. Lloyd’s and global D&F catastrophe business was typically more loss-affected, and this translated into risk-adjusted rate increases of 15 percent to 25 percent, sometimes more for badly hit layers.”

Mike Reynolds, Global CEO, JLT Re, added: “Impacts spread beyond property lines as higher catastrophe and attritional losses influenced renewals for certain specialty and casualty lines. This coincided with a growing recognition that rates in some of these areas had fallen to levels that tested technical profitability after successive years of declines.

“As a result, programmes across some specialty lines were renewed as expiring, or with modest rate increases. Negotiations for casualty renewals, meanwhile, were balanced by profitability pressures on original business and reinsurers’ desire for higher rates due to the build-up of claims. Loss-free casualty programmes therefore renewed close to expiring levels whilst accounts that experienced losses saw moderate increases. These outcomes were often accompanied by lower ceding commissions.”

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