Insight and Intelligence on the London & International Insurance Markets 19 Feb 2018

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Positive rate momentum at 1.1 but capacity glut continues

  • John Hewitt Jones 13 February 2018
  • US property claims from third quarter catastrophes and the sudden change in the UK's personal injury discount rate helped to nudge up reinsurance rates at the 1 January renewals.

    However, the wave of money from insurance-linked securities (ILS) and alternative capital dampened price increases, limiting rate hikes to low-single digits.

    Preliminary renewals commentaries issued by Munich Re, Hannover Re and Scor indicated that hurricanes Harvey, Irma and Maria had only a moderate impact on rates.

    Elsewhere, rates on motor liability reinsurance treaties rose after the UK government slashed the Ogden personal injury discount rate from 2.5 percent to -0.75 percent in February last year.

    In its 1 January treaty renewals report, Hannover said upward pricing pressure had tailed off for loss-free US property covers, while rates on loss-affected programmes were more modest than initially expected.

    Price increases were limited by the glut of ILS and alternative capital waiting to step in, according to the reinsurer.

    "The excess supply relative to demand meant that rate rises generally remained on the moderate side, as a consequence of which it was still not always possible to secure prices that were commensurate with the risks," Hannover Re said.

    The reinsurer was optimistic about the prospect of achieving price increases on reinsurance renewals in the year ahead following elevated claims activity in 2017, but it said rates for US property cat treaties had only shifted slightly.

    "The rate increases obtained for loss-affected programmes were, however, more modest than had initially been anticipated," the reinsurer said, giving a mixed view of the impact of US property catastrophe claims on rates.
    Hikes in primary motor rates following the Ogden rate change in the UK last year have resulted in a significant uptick in liability reinsurance rates.

    Hannover Re has consequently expanded its liability book, boosting premium income in this class of business by 14.4 percent.

    Specialty reinsurance lines showed a slight improvement, with the pace of rate erosion for marine and aviation covers declining. While Hannover Re's marine premium volume grew by 6.2 percent, aviation registered a 3.3 percent reduction.

    In its renewals commentary Munich Re also highlighted the impact of excess capital at 1 January and said it had resulted in moderate composite rate increases, despite high losses from natural catastrophes in 2017.

    "The availability of reinsurance capital remained high during the January renewals, so price increases were moderate overall," Munich Re said in a statement accompanying its preliminary figures for 2017.

    The reinsurer added this had led it to walk away from 14 percent of its EUR8.3bn ($10.18bn) book of business up for renewal.

    Munich Re said reinsurance prices increased by roughly 0.9 percent across all classes of business, compared to a fall of 0.5 percent on average in 2017. The reinsurer added that market conditions should continue to improve in the remaining renewal rounds in 2018, but that the claims experience in individual market segments would play a key role.

    Commenting on 1 January P&C reinsurance renewals, Scor said risk-adjusted pricing had improved by roughly 3 percent at 1 January.

    The French reinsurer took a more positive view of programmes hit by third quarter catastrophes and agreed that UK motor reinsurance proved one of the most attractive lines of business at 1 January.

    "Loss-affected programmes and layers show the greatest improvements, most notably catastrophe-exposed reinsurance in the US and motor reinsurance in the UK," Scor said.

    The reinsurer pointed to a 4.1 percent increase in treaty P&C premiums at 1 January, driven by US property cat and UK motor business. Credit and surety and US cat business contributed to a 2.6 percent uptick in specialty treaty business.

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