Prudence and replenished capital drive June & July renewals: Willis Re 1st View

Rhea-AI Summary

Willis Re's 1st View report reveals that the global reinsurance market has regained capital levels, now only 5% lower than December 2019, after a 30% drop in March 2020. The report highlights double-digit risk-adjusted reinsurance price increases for loss-hit catastrophe treaties, particularly in the U.S., with rises of +10% to +35%. COVID-19 losses are reported at approximately $7 billion. While the market remains capital-adequate, there is a cautious approach to underwriting profitability amid ongoing pandemic concerns.

Positive

• Capital levels in the reinsurance market are only 5% below December 2019 levels, a recovery from a 30% decline.
• Double-digit price increases for loss-hit catastrophe treaties indicate robust market demand.

Negative

• COVID-19 losses are currently estimated at $7 billion and may take years to settle.
• Rise in rates for U.S. healthcare liability reinsurance by up to +40% indicates increasing risks in the market.

LONDON, July 01, 2020 (GLOBE NEWSWIRE) -- Insurers were able to secure sufficient reinsurance capacity at the 1 July and 1 June renewals supported by adequate reinsurance capital. The remarkable recovery in investment markets allied with investors’ appetite to support additional capital and debt offerings and reinsurers own prudent risk and cost management has seen capital levels return to being only 5% lower than the end of December 2019.  This compares to a 30% reduction at the end of March 2020, according to the latest 1st View renewals report from Willis Re, the reinsurance division of Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.

In general, the longstanding underlying issues of rate inadequacy continued to fuel measured rate adjustments in many classes and geographies, led by the U.S. treaty market. 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. Rate increases were prevalent but much less dramatic for loss-free catastrophe treaties with limited peak catastrophe exposure.

For casualty business, excess of loss treaties with loss emergence saw rates rises. This was most noticeable for U.S. healthcare liability which saw increases by as much as +40%, but those long-tail lines of business with stable prior-year results renewed as expiring or with modest price increases. Pro-rata commissions were flat or reduced by up to 2.5 percentage points, largely driven by the extent of pricing changes on original policies.

Collectively reinsurers are recognising that COVID-19 losses, which currently are reported at about $7 billion, may take several years to settle which will spread out reserving over many quarters. Meanwhile the pandemic has driven a second realisation: the impacts of a pandemic loss on the asset and liability sides of the market’s balance sheet are highly correlated. As a result, investors have remained cautious and selective as they continue to withdraw capital from some ILS funds whilst favouring better performing funds and rated reinsurers.

James Kent, Global CEO of Willis Re, said: “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. 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.”

Download the full report: The Willis Re 1st View report is a thrice-yearly publication including specific commentary on key trends throughout the world’s major reinsurance classes and regions.

About Willis Re

One of the world's leading reinsurance brokers, Willis Re is known for its world-class analytics capabilities, which it combines with its reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit https://www.willistowerswatson.com/en-GB/Solutions/reinsurance

About Willis Towers Watson Securities 

Willis Towers Watson Securities, with offices in New York, London, Hong Kong and Sydney, provides advice to companies involved in the insurance and reinsurance industry on capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. Willis Towers Watson Securities is a trade name used by Willis Securities, Inc., a licensed broker dealer authorized and regulated by FINRA and a member of SIPC (“WSI”), Willis Towers Watson Securities Europe Limited (Registered number 2908053 and ARBN number 604 264 557), an investment business authorized and regulated by the UK Financial Conduct Authority (“WTW Securities Europe”) and Willis Towers Watson Securities (Hong Kong) Limited, a corporation licensed and regulated by the Hong Kong Securities and Futures Commission (“WTW Securities (HK)”).

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com

Contact:

Media

Haggie Partners: +44 20 7562 4444 | willisre@haggie.co.uk

FAQ

What does the Willis Re 1st View report say about reinsurance prices?

The report indicates that there have been double-digit risk-adjusted price increases for loss-hit catastrophe treaties, with increases ranging from +10% to +35% in some areas.

How has the reinsurance capital level changed according to the latest report?

Reinsurance capital levels are currently only 5% lower than at the end of December 2019, rebounding from a 30% decline in March 2020.

What are the estimated COVID-19 losses for reinsurers?

The estimated COVID-19 losses for the reinsurance sector are around $7 billion.

What trends are observed in the U.S. healthcare liability reinsurance market?

In the U.S., rates for healthcare liability reinsurance have increased by as much as +40%, reflecting rising risks in that sector.