Renewal Retrospective - In the balance

Executive Summary

A degree of balance was restored to the reinsurance market at the 1 January 2017 renewal, as later completions and evidence of further price stabilisation defined outcomes for many lines of business and regions. Whilst renewals twelve months ago were bifurcated between the United States, where single-digit pricing declines were the norm, and the rest of the world, where double-digit falls were not uncommon, there was a broader trend towards moderating price declines in 2017. As a result, programmes across a number of different territories and lines of business generally renewed closer to expiring levels, although some continued to experience more significant downward pricing pressures.

JLT Re’s Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-on-Line (ROL) Index fell by 5.7% at 1 January 20171. This compares to a decline of 8.2% at 1 January 2016, 11% in 2015 and 12% in 2014. Much of the moderation was driven by relatively stable US property-catastrophe renewals.

More marked pricing declines were registered for most international property-catastrophe business, but the magnitude of these reductions was typically less than those of last year.

The moderating trend at 1 January 2017 is related to today’s historically low pricing levels. Indeed, global property-catastrophe pricing is now 33% below 2013 levels and approaching the previous cyclical low of the late 1990s. It is becoming clearer that the scope for further price reductions is limited for some classes of business as rates near technical minimums, i.e. the point where expected returns on capital fall below costs of capital.

Increased underwriting discipline was likewise evident across non-catastrophe lines, which also exhibited moderating rate reductions at 1 January 2017. Rates for most casualty and healthcare classes ranged from flat to moderately down. Specialty classes once again generally saw more substantial rate reductions.

Nevertheless, rate declines in certain specialty lines saw moderations compared to last year.

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