Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

Continue Reading

Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

Continue Reading


Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

Continue Reading

Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

Continue Reading


Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading

Categorized | Insurance

Reinsurers hit by falling renewal prices

Posted on December 31, 2015

Submerged buildings overlooking the river Ouse are pictured late in the afternoon in York, northern England, on December 29, 2015. Residents in the northern city of York continued to deal with the effects of flooding and make preparations for the arrival of another winter storm that is set to bring more heavy rain. Around 500 properties were flooded in York on December 27, as two rivers, the Ouse and the Foss, burst their banks. AFP PHOTO / JUSTIN TALLIS / AFP / JUSTIN TALLIS (Photo credit should read JUSTIN TALLIS/AFP/Getty Images)©Getty

The River Ouse in York, north east England, burst its banks

Reinsurers are facing further pressure after the December contract renewal season delivered another year of falling prices — the fourth in succession.

Prices for property catastrophe reinsurance in the UK fell by between 10 per cent and 15 per cent. In continental Europe prices fell by between 5 per cent and 12.5 per cent on a like-for-like basis, according to broker Willis, while in the US prices were down by between 2.5 per cent and 7.5 per cent. Just over half of the reinsurance market renews in December, with the rest in April, June and July.

    “There was some hope in the middle of the year that pricing reductions would begin to ease but those hopes have largely been dashed and rates have continued to fall,” said James Vickers, chairman of Willis Re International.

    The price declines are partly driven by the primary insurers that buy reinsurance, who are facing falling rates themselves. “Primary insurers have been asking reinsurers to help them by reducing costs and widening the coverage,” said Mr Vickers. 

    Other factors pushing rates down include an influx of capital into the sector from sources such as insurance-linked securities, and an absence of large property catastrophe losses. According to preliminary data from Swiss Re, there were $32bn of insured catastrophe losses in 2015, down 11 per cent on 2014 and about half the level of the $62bn 10-year average. 

    The floods affecting large parts of the UK are not thought to be widespread enough to have a significant affect on reinsurance pricing. 

    The falling prices, combined with low investment returns, are taking their toll on reinsurers’ profitability. According to an index compiled by Willis, underlying returns on equity (excluding the effect of reserve releases) in the reinsurance industry fell from 7.8 per cent in the first half of 2014 to 5.1 per cent in the first half of 2015. Many of the quoted reinsurers target ROEs in the low to mid teens. 

    Changes in the insurance-linked security market could help to keep returns low. While initial investors in ILS targeted double-digit returns, newcomers such as pension funds are not so demanding. “It is long-term money,” said Mr Vickers, “they want stable long-term returns but they are not dissuaded by a 5 per cent return.” 

    In recent years, reinsurers’ reported profits have been bolstered by reserve releases from previous years. That trend is expected to continue in the results for 2015, allowing the reinsurers to report decent results despite the falling prices. 

    “The pips are squeaking but they are not yet prepared to walk away from things,” said Mr Vickers. “Some reinsurers have got to start reporting very bad results for the game to begin to stop.”