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Hopes of reinsurance price rises dashed again at Jan. 1 renewals

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Hopes of reinsurance price rises dashed again at Jan. 1 renewals

Heavy natural catastrophe losses again failed to boost reinsurance prices overall at the Jan. 1 renewals, according to reinsurance brokers, although there were isolated increases in loss-hit lines of business.

Roughly 50% to 60% of the world's reinsurance renews on Jan. 1 each year.

After a heavy year for natural catastrophes in 2017 cost the insurance industry $144 billion, according to Swiss Re, the industry suffered another string of catastrophes in 2018. Insured losses amounted to $79 billion, according to Swiss Re, while reinsurance broker JLT Re said the tally would surpass $80 billion.

Nevertheless, JLT Re said in its review of the Jan. 1, 2019, renewals that the pricing outcome "broadly defied expectations of post-loss firming for a second consecutive year" and that pricing overall was "broadly stable." Property-catastrophe pricing fell 1.2% at Jan. 1, 2019, according to the broker's rate-on-line index, after a 4.8% increase at the same point in 2018, and JLT Re said rate increases were restricted to classes of business that suffered large losses or where performance has deteriorated.

Fellow reinsurance broker Willis Re agreed that there was a split in the market, noting in its review that the renewals "highlighted the gap between pricing for accounts with peak peril exposures and/or poor loss records, and those with good loss records and/or nonpeak exposures."

Retrocession 'crunch'

The relatively flat reinsurance pricing came despite what Willis Re described as a "challenging" renewal for retrocession, the cover reinsurers buy to protect themselves. The broker said "a multitude of issues" affected capacity, pricing and terms for retrocession, including a "capacity crunch" in the final stages of renewals because of "impaired inflows of capital and capacity" from insurance-linked securities investors, which play a key role in the retrocession market.

JLT Re said pricing for retrocession business that had suffered losses increased by double-digit percentages, and that price changes for retrocession cover without losses ranged from flat to increases of 10%.

But both brokers noted that the challenges in the retrocession market had little effect on overall reinsurance pricing, with JLT Re describing the spillover as "limited" and Willis Re noting that "dislocation between underlying reinsurance pricing and retrocession pricing has increased further year on year."

Shares in three major European reinsurers — Munich Re Co., Hannover Re and Scor SE — were trading down around midday, outstripping declines in their national benchmarks and the STOXX Europe 600 Insurance index. Swiss markets were closed, meaning there was no trading in Swiss Re AG.