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Loss-hit US nationwide cat accounts up 5-10% at 1.1: Willis Re

Reinsurers failed to achieve the sought-after magnitude of rate increases at the 1 January renewals, but they will benefit from an improved trading environment in the year ahead, according to Willis Re.

The elevated catastrophe losses incurred by the industry in the second half of 2017 resulted in a slow renewal season, Willis Re said in its 1st View report. But despite these losses, an oversupply of industry capital stymied rate increases.

Reinsurers were able to attain pricing increases of up to 10 percent for loss-hit US property cat accounts, according to the broker.

"The common perception that the overall 1 January rating environment has been disappointing for reinsurers needs to be balanced against the aptitude of the market to provide buyers with stability of capacity at reasonable prices with an orderly renewal process that demonstrates the growing advancement of the market," Willis Re CEO James Kent said in the report.

In US property lines, reinsurers initially pushed for significantly higher rates that "were mostly discounted as firm orders came in late and well below most reinsurers' expectations", Willis Re said.

"Reinsurers' desire to push up prices was further frustrated by the latest catastrophe model changes which reduced technical expected losses as well as buyers with net retained losses holding a firm line on increases."

The broker found that property rates marginally rose in most regions, with the Caribbean and the US topping the charts for both risk and catastrophe loss-hit accounts.

The largest increases were achieved on loss-hit Caribbean cat accounts, which saw 20-40 percent rises in pricing, while loss-free rates were up by 10-20 percent.

Price increases for loss-hit risk accounts in the region ranged from 5-20 percent. Loss-free risk rates increased by up to 5 percent.

Meanwhile, the US experienced more muted increases. Rates for loss-hit cat accounts were up by 5-10 percent, while loss-free cat pricing rose by up to 7.5 percent. Loss-free risk accounts saw mid-single-digit growth rates.

Canada also achieved strong rate increases for loss-hit accounts, up 10-30 percent in cat and 15-30 percent in risk. However, loss-free accounts saw marginal increases of up to 5 percent.

Europe and Latin America were among other areas that recorded rate increases on cat business.

Alternative capital was a major culprit in hindering traditional reinsurers from achieving the desired rate increases, as funds reloaded capital after the disasters and maintained or increased their participation at 1 January.

This contrasted with the market dynamics recorded after previous cat-heavy years, when pricing corrections were more substantial but alternative capital had a smaller presence in the space, said Willis Re's Kent.

"This continued supply of capital has produced a different set of dynamics over the current renewal season than reinsurers might have traditionally anticipated," he said.

The executive noted that insurance-linked securities (ILS) capital had nearly tripled since 2011 to $75bn six years later.

"By the middle of Q4, it became apparent that the ILS market was comfortably weathering its first major test for a number of funds, with investors prepared to recapitalise to make good both lost and illiquid trapped capital," Kent said.

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