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Expect price declines at reinsurance renewals, Willis Re's James Vickers warns

Reinsurers should expect that they will have to lower their prices again in order to keep client business at the next round of reinsurance contract renewals, a top broker warned April 20.

Reinsurers take on risk from insurers in exchange for a share of the premiums. Much of their business comes from reinsuring against the risks of large catastrophes such as hurricanes. The next round of reinsurance contract renewals is due to conclude June 1.

Willis Re International Chairman James Vickers said that, barring some large loss events that might disrupt the market, buyers of reinsurance will expect to benefit from the price falls that have become the norm over the past few years.

"If nothing untoward happens in the next couple of weeks, why should the situation change? Reinsurers have [cut prices] at [the January 1 renewals], they've done it at [the April 1 renewals]. Buyers will automatically expect at a minimum the same treatment. Unless something untoward occurs, that will be the expectation," he told market participants during a speech at re/insurance marketplace Lloyd's of London.

However, Vickers also said he saw "growing evidence" that some reinsurers "are really reaching a point where they're not prepared to grant any further concessions."

Intense competition for client business after several years of below-average catastrophe losses has driven down the prices that reinsurers can charge. Traditional reinsurers such as Munich Re, Swiss Re Ltd., Hannover Re and SCOR SE have also faced increasing competition from capital markets investors who have poured capital into insurance-linked securities, debt instruments that substitute traditional reinsurance products and can be canceled or written down to cover losses arising from natural catastrophes or other disasters.

"ILS markets began to become quite competitive, certainly in [the third and fourth quarters of 2016], and they've maintained a competitive position in the market, which is putting some pressure on pricing on the traditional [products]," Vickers said.

Aggregate net income for a sample of top reinsurers compiled by Willis Re reduced to $26.6 billion in 2016 from $30.3 billion in 2015, figures released April 20 showed. As a result, their return on equity fell to 8.0% from 9.3% year over year.

Willis Re is the reinsurance division of Willis Towers Watson Plc.