Property catastrophe rates for loss-free accounts likely to be down 5–10% at 1 January renewals

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Increased capacity, competition and changing market dynamics have created a buyer’s market for European cedants, according to Willis Re.

The reinsurance broker claims that these market conditions, coupled with changing reinsurance buying patterns, are driving reinsurers to offer more flexibility and tailored solutions to European clients.

Willis Re International chief executive Tony Melia said: “With large parts of Europe so far experiencing another year of exceptionally low natural peril loss activity, reinsurers are facing significant rating pressure on catastrophe programmes in loss-free territories on the back of the excellent 2012 and 2013 results. Absent a major loss event, we expect risk-adjusted reductions of 5% to 10% for straightforward loss-free property catastrophe business with the reductions on individual programmes being influenced by programme history and perceived profitability.”

Reinsurers are also reviewing their view of risk on loss-affected programmes that, together with the history of the placement and individual loss experience, will determine the pricing level at renewal.

“Even loss-affected programmes will benefit from the current soft market conditions and will receive more modest adjustments than during previous pricing cycles. Above all, though, the current market environment enables cedants to consider buying the reinsurance that they want, in addition to what they need.

“Cedants should take advantage of reinsurers’ flexibility and their willingness to provide company-wide solutions to protect against earnings volatility alongside capital protections. These, together with the use of reinsurance structures to consolidate risk appetites, are the underlying drivers of changing reinsurance strategies in the industry,” said Melia.