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Liability reinsurance faces pricing pressure in mixed Jan. 1 renewals

Liability reinsurance business experienced "the most prominent pricing pressure" at the Jan. 1, reinsurance renewals, according to reinsurance broker Willis Re Inc.

But the broker noted in its annual review of the Jan. 1 renewals that overall, there was "significant variation in pricing and capacity" at the key renewal date, depending on geography, product line, loss record and relationships between the reinsurer and client. Roughly 50% of the world's reinsurance renews on Jan. 1 each year, with a big focus on European business.

Willis Re said the upward pressure on liability reinsurance was particularly prominent in programs with an increase in loss frequency and/or severity. But there was a disparity between proportional and excess-of-loss business covering long-tail liability, with proportional seeing less volatility in year-over-year pricing, and excess-of-loss seeing "sharp pricing increases" because of the market view that loss severity has increased.

With proportional reinsurance, reinsurers pay a set percentage of all claims incurred by the client, while excess-of-loss reinsurance kicks in once losses hit a set threshold.

Some of the biggest price increases were seen in U.S. general third-party liability excess-of-loss business, where prices were up by between 15% and 30% on a risk-adjusted basis for business where there had been claims. Also heavily affected was U.K. motor liability, where prices rose by between 5% and 35% for claims-hit programs, according to Willis Re's figures.

Willis Re noted a "clear divergence" of market views on liability, with some reinsurers "openly retreating and cutting back their in-force portfolios," and others seeing opportunities to pick up business and clients against a backdrop of rising primary insurance rates. It said some reinsurers "completely withdrew" from certain lines, particularly long-tail business, and that this effect was augmented by some Lloyd's of London syndicates stopping trading.

Property divergence

There was also divergence of renewal outcomes on the property side, according to Willis Re. The broker said property-catastrophe reinsurance was less demanding to renew than non-catastrophe-exposed business, as most of the policies renewing at Jan. 1 were loss-free.

Risk-adjusted pricing for loss-free U.S. catastrophe business was flat to slightly up, and for international catastrophe business was flat to slightly down, Willis Re said. For international business, reinsurers did not get the price increases they were hoping for because of a "persistent oversupply" of capacity, resulting in flat to moderate reductions at renewal in Asia, Latin America and Europe, the Middle East and Africa.

The findings were in keeping with some brokers' and insurers' expectation of flat pricing and overcapacity for European property business ahead of the renewals.

Willis Re also noted a reduction in catastrophe capacity provided by medium-sized reinsurers that are dependent on retrocession, which reinsurers buy to lay off some of their own risk, but it added that this did not result in shortfalls.

Despite the generally flat trend in property, some price increases were available on loss-hit business property catastrophe. Loss-hit Caribbean and Latin American business, for example, saw increases of between 5% and 15%, and Canadian loss-hit catastrophe business was up by between 5% and 10%, Willis Re's numbers show.

Willis Re is a division of broking and consulting group Willis Towers Watson PLC.