Any hope that the new year would bring a change in fortunes for depressed renewal rates quickly evaporated when the crucial January treaties were finalised.

Depending on who you speak to, reinsurance rates have either bottomed out or continue to descend.

The only thing they just about agree on is that a sustained rise in prices is as remote as achieving the calendar-year grand slam in golf or tennis.

“There is still a large amount of capital in the market,” Guy Carpenter CEO Pacific Tony Gallagher told insuranceNEWS.com.au. “It still seems to be a reasonably soft cycle.”

Guy Carpenter’s January renewal report says signs of stabilisation have emerged worldwide across both the traditional and insurance-linked securities (ILS) markets.

“The reinsurance market has been challenged by a persistent low interest rate environment [and] the continued inflow of new sources of capital,” Vice-Chairman David Priebe said.

It also benefitted from an extraordinarily long period of few major natural catastrophes and record levels of merger and acquisition activity last year, he said.

“As a result, (re)insurance companies are evolving their operating strategies to embrace this complex environment.”

Major global reinsurers such as Hannover Re and Scor voiced satisfaction with the renewals, despite price declines in some lines, especially in property and casualty (P&C).

But other industry players, such as Willis Re, offer a less sanguine prognosis and are convinced the market has room for more declines before any upturn.

Either way, there are bound to be winners and losers in such situations.

For the moment, it appears insurers have the upper hand, because lower renewal rates should, in theory, result in savings.

“The value proposition of reinsurance improved further and insurance companies continued to incorporate reinsurance capital with modestly better pricing, terms and conditions into their underwriting capital structures at January 1,” Aon Benfield Head of Broking John Carroll told insuranceNEWS.com.au.

“While the above market position is a positive for insurers, which will benefit from the reduced cost of reinsurance capital, insurers locally and globally are faced with a similar supply/demand imbalance, which is translating into similar pressure on original rates.

“As a result, the benefit an insurer can realise from the current positive reinsurance market environment is a function of its… approach to reinsurance and how it is seeking/choosing to integrate and utilise the available capital in its original offering to its clients.”

Hopes were raised when prices stabilised for the June and July renewals last year, but the market soon ran out of puff, pressured by the same combination of factors that have kept a lid on rates in the past few years.

A plentiful supply of capital, lifted in part by the explosive growth of the ILS market, and generally low catastrophe losses are behind the situation.

The near-zero interest rates imposed by major central banks have not helped matters.

Willis Re believes a pricing floor “remains elusive, with rates continuing to fall across most markets, while specialty markets such as aviation and energy have proven particularly difficult for reinsurers.

The Willis Reinsurance Index for the first-half of last year shows reinsurers made only a 5.1% return on equity after adjusting for reserve releases and below-average catastrophe losses.

In Australia, market conditions remain soft for mid to upper layers of catastrophe programs, while lower layers exposed to attritional natural perils reinsurance have seen firmer pricing.

While ILS capital is in abundance, Willis Re cautions the “capacity is very selective, given the generally soft market conditions”.

“There is no indication renewal rates for insurance protection are heading up,” Standard and Poor’s analyst Caroline Strahan told insuranceNEWS.com.au.

“In fact, they [clients] are still expecting discounts on renewals.

“While interest rates are still low, the cost of capital is low, so there’s a lot of capital around. It’s a global phenomenon and definitely having a spillover effect on Australia.”