The Insurance Insider Bermuda Roundtable 2016
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The Insurance Insider Bermuda Roundtable 2016

Dear friend,

It's not all doom and gloom. The mid-year renewals weren't that bad after all.

Although rate softening slowed, abundant capacity and an absence of cats could see the reinsurance market bump along the bottom of the cycle for years, according to Willis Re.

In its 1st View report on the 1 June and 1 July renewal season, the firm reported a continuation of market softening, with a slowdown in the magnitude of rate reductions "increasingly apparent".

It said capacity withdrawals had been evident where some reinsurers viewed pricing to be inadequate, and that overall there was "considerable pricing variation" by class and territory.

As yet, any indication of widespread pricing stabilisation "remains elusive", Willis Re said.

The firm's CEO John Cavanagh highlighted abundant capacity that continued to "overhang the market" in virtually all classes and regions.

When we sat down in Bermuda this time a year ago one of the members of our congregation warned that pricing was getting dangerously near to the bone.

After 12 months of albeit moderating price declines, perhaps bones would be hurting when we sat down again this year?

Well, it turns out hasn't been that bad, after all.

Here's what one CFO in attendance had to say, after acknowledging that pricing may be scraping along the bottom.

"...it's an adequate bottom, cat is still producing double-digit returns, including in Florida. With Florida being a substantially bigger portion of our book... it's an important part. Letting Florida slide below the double-digit level isn't going to work with the returns that we're looking for on behalf of our shareholders."

Find out who said this by reading on.

But hang on a minute. Double-digit returns on offer? Where do I sign up? Single-digit fodder is becoming the order of the day across the globe.

For example, wasn't Exor's new owner very publicly happy to accept such lowly expectations?

The investment markets won't be doing us any favours soon either. Those around the table who were hoping that an interest rate rise might be on the cards in the next year now look set to be disappointed yet again.

At a time when underwriting returns are slim and markets are soft, we have often relied on investment portfolios to bring some relief.

But the signs are pointing to lower interest rates for even longer, dampening any return expectations from carriers' portfolios. Brexit, which occurred just after our debate, has only made matters worse.

The Bank of England governor Mark Carney, who predicted that an economic downturn was on its way, warned that Britain was already suffering from "economic post-traumatic stress disorder".

The central bank will take "whatever action is needed to support growth", which probably includes "some monetary policy easing", in an attempt to reassure the markets, Carney said.

On the other side of the pond, US Federal Reserve board chair Janet Yellen had indicated that rate rises were coming within "months", but that was pre-Brexit, so who knows what her thinking is now.

Where have we heard all this before?

Lower and lower for longer and longer.

We shall be bumping along this bottom, whether adequate or not, for some time longer.

Enjoy the read. To view the roundtable, click here.


Mark Geoghegan

Editor-in-chief

The Insurance Insider

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