While the April 1 renewals saw a continuation of the softening market, there are encouraging signs that price cuts are slowing and reinsurance demand is rising, according to a Willis Re report.

For the fourth consecutive year, reinsurance buyers have sought and received premium savings and broader terms and conditions, said the report titled “Willis Re 1st View: Will demand growth ease the pain?”

As an example of some of the pricing trends, the report said that property catastrophe pricing levels were down in Japan up to 12.5 percent, while India rates were down up to 10 percent and Korea rates were down up to 20 percent.

(The April renewals are focused on business in the Asia-Pacific region, although some U.S. reinsurance business is also handled during the season. Over half of global reinsurance renewals take place in January.)

Nevertheless, overall price reductions at the April 1 renewals “were marginally less than those achieved 12 months earlier,” Willis Re said. “A number of factors, such as increased limits purchased, as well as some modest losses, including the deterioration of earlier losses, have had an impact.”

In addition, the report said, many reinsurers have gotten to the point “where they are no longer prepared to grant any further concessions, irrespective of relationship considerations.”

The other bit of good news for reinsurers is the fact demand is picking up. “As observed during the January renewals, a number of larger insurers, which over the last few years were driving strategies to retain more risk on their balance sheets, are now looking to selectively reverse their thinking,” said the Willis Re report.

These insurers are increasing their cessions to selected reinsurers, “both on traditional risk sharing reinsurance structures as well as loss portfolio transfers and adverse development covers,” the report said.

“The underlying reasons for the reversal in reinsurance buying strategies are distinctive to each client. But increased regulation, which has promoted a more holistic view of risk and reward, allied with shareholder pressure to improve ROEs by reducing the equity element of the calculation, are clearly two overall drivers,” commented John Cavanagh, Global CEO of Willis Re, in an introduction to the report.

“Ultimately, buyers are still reaping the rewards of competitive conditions and reinsurers will need another below average loss year to produce acceptable results in the face of a tough 2016. But the apparent uptick in demand is certainly a positive sign,” he continued.

However, the report emphasized, it is premature to conclude that the market is reaching a pricing floor or an end to current conditions, but for certain markets it does suggest a slowdown in pricing deterioration.

“The underlying imbalance of capital supply and muted demand allied to reinsurers’ largely satisfactory results continues to hang over the market,” said Cavanagh.

Despite low interest rates and difficulty in achieving top line growth, most reinsurers reported acceptable full year results for 2015, the report said, explaining that their results are being propped up by the benign catastrophe climate and prior reserve releases.

In a press release accompanying the report, Willis Re cited statistics from Swiss Re, which reported this week that “global insured losses from natural catastrophes and man-made disasters in 2015 were $37 billion, well-below the $62 billion average of the previous 10 years.”

Those reinsurers that have been able to achieve top line growth, managed this with earlier strategic decisions to enter the specialty insurance market. “To date, the results of most reinsurers’ specialty insurance portfolios have been satisfactory, although a few have started to report difficulties in some specific lines,” the report went on to say.

Source: Willis Re

*This story appeared previously in our sister publication Insurance Journal.