Discipline holding as market balance returns: Willis Re’s Vickers
James Vickers, Chairman of Willis Re International, has said that “discipline is still there,” even as the latest edition of the broker’s 1st View Report shows that recent reinsurance price increases have brought the market close to equilibrium.
Speaking in an interview with Reinsurance News, Vickers noted that the reinsurance market is “beginning to come more into balance in terms of supply and demand and pricing” following the mid-year June and July renewals.
Willis Re’s 1st View report noted a continuation of rate increases at the renewal period, with very few examples of reductions, despite increases perhaps not being as high as many reinsurers were hoping for.
“It’s a sort of continuation of what we saw at 1/1 and 1/4,” Vickers told Reinsurance News. “But whilst it’s reaching equilibrium, reinsurers aren’t going backwards. They are still enjoying rate increases on the underlying business.”
And at the same time, discipline amongst reinsurers has remained strong, as they continue to target improved underwriting ratios in the low 90s, and as challenges remain due to the low interest rate environment.
“Whilst they’re all focused on growth, it’s not growth at all costs,” Vickers remarked. “So underwriting discipline is actually holding up at the moment.”
Overall, several factors were seen as coming together to moderate rate increases at the mid-year renewal period despite reinsurers’ best efforts.
These included good Q1 results for reinsurers, generally low catastrophe losses, rising underlying reinsured premium volumes, positive investment trends, and the strong economic recovery from Covid-19-related economic pressures.
Capacity also remained more than sufficient to meet demand, but Willis Re noted that reinsurers resisted the temptation to compete for top-line revenue, so capacity for poorly performing classes was constrained.
“At the end of the day, the reinsurance market is driven by capital, and it’s in a very strong capital position,” Vickers commented. “Despite the turmoil last year, capital ended up at the end of the year being slightly larger, and capital is remaining more than adequate. And there’s no reason to see that there will be a collapse in capital any time soon.”
“There is arguably little on the supply side to warrant rate increases,” he noted. “But equally, I think that the concentration on bottom line is there. Top line growth is good, but bottom line underwriting profit in the current low interest rate environment is crucial. And I think that it will remain that way for some time.”
Somewhat surprisingly, Willis Re reported that concerns over inflation and COVID related losses had almost no impact on pricing at 1/6 or 1/7, with flat or modestly rising rates for property renewals.
On the COVID side, Vickers said that pricing didn’t move simply because “people haven’t paid very much,” although he did acknowledge that pandemic losses still have the potential to influence future reinsurance renewals as more claims slowly get settled.
“The conversations are hotting up between ceding companies and their reinsurers seeking for settlement. And we’ll see how those pan out,” he told Reinsurance News. 2But I suspect if we see some commercial compromises or agreements to settle take place it will be on the short tail classes. So we could begin to see some sort of pricing impact at 1/1 2022. But it’s taking a long time to work its way through, and it’s by no means clear what the final claims will be.”
“It is highly likely that a lot of the settlements will be done on a commercial private basis. But the one that is further away, and less certain still, is COVID claims on long tail classes,” Vickers warned. “Everybody talks about it and there’s got to be some claims, but they haven’t arrived yet. And that’s even on the primary side, let alone how they might filter through the reinsurance market.”