We’re into a crucial renewals period for the reinsurance industry, and while rates are still only heading in one direction there is a general consensus that the signs of stabilisation are there.

Double-digit falls have been all too common in recent years, but JLT Re’s assertion that June 1 renewals saw primarily “low single-digit reductions” offers some hope that the most drastic declines are behind the industry.

However, reinsurance supply continues to exceed demand and the market is “awash with capacity”.

Bob Betz, co-leader of JLT Re’s National Catastrophe Practice, says rates have now been falling for five years, but “reductions [on June 1] slowed significantly compared to previous years”.

“Risk-adjusted pricing typically fell within a range of flat to down 5% as markets generally held firm against attempts to negotiate higher discounts,” he said.

“Indeed, efforts to achieve reductions in excess of 5% on any one layer were met with considerable resistance.”

The renewal process also showed pricing of traditional and insurance-linked securities (ILS) markets are converging, reversing the decoupling trend that first emerged in 2013.

“This pricing consensus meant most programs renewed within a narrow range of flat to low single digit reductions [this year] although changes to terms and conditions added to the overall economic benefit of cedents in some instances,” said Mr Betz.

JLT Re says pricing for the bellwether Florida business is down 38% on 2012 levels, but still 17% above the previous cyclical low of 1999/2000 “implying limited scope for further profitable pricing reductions”.

There was also evidence of increased underwriting discipline amid margin compression, deteriorating results, increased catastrophe activity in the first five months of the year and predictions of elevated hurricane activity in the North Atlantic.

Demand for reinsurance has been stable, after large rises last year.

JLT Re says the stabilisation trend is expected to continue for the rest of this year, depending on loss activity.

Guy Carpenter Pacific Region CEO Tony Gallagher told insuranceNEWS.com.au he agrees there are signs of stabilisation.

However, he is slightly less optimistic than JLT Re about the level of rate declines at renewal.

“It probably has slowed down but the reductions are still in the 5-10% range,” he said.

“Some of the renewals are still in play until July 1, but it is clear that some markets have decided they are not going to go down any further and are walking away from programs.

“Business is still being transacted at a price acceptable to the reinsurers, although it may be approaching the bottom.

“It is certainly still a buyers’ market.”

Morgan Stanley analysts, who gathered data from Bermuda-based reinsurers, say average declines of 3-5% are expected.

Following this renewal, prices may even reach the bottom, Morgan Stanley says, adding that over the past three years rates have declined more than 40%.

Global Head of Analytics for JLT Re David Flandro says while the “clear trend of price stabilisation” is the over-riding characteristic of this year’s renewals, nobody should expect rate increases any time soon.

“Surplus reinsurance capacity continues to contain any prospect of higher reinsurance rates.”

So is this the beginning of the recovery for reinsurance rates? With the major renewals season now in full swing, it’s too early to tell. And it’s obvious that any recovery will be muted.