Significant loss activity has affected catastrophe programs, aggregate cover and insurers’ retained natural peril budgets in Australia, according to Willis Re’s latest report on reinsurance rates.

“Rates on mid to upper layers continue to soften, albeit reductions are not as great as they have been over the past 12-24 months,” it says.

Reinsurer mergers and acquisitions are not affecting capacity in Australia, with traditional capacity continuing to grow.

In casualty, rates are continuing to fall, with reductions consistent with previous renewals.

“Privatisation of government statutory schemes continues to focus the attention of insurers and reinsurers alike as the next genuine opportunity for growth,” the report says.

Global reinsurance rates continued to soften in the first half of this year, and property catastrophe price competition is cooling.

Willis Re Global CEO John Cavanagh says recent pricing trends across June 1 and July 1 renewals offer reinsurers some hope. Stability in reinsurance pricing is starting to emerge in peak property catastrophe zones, as supply and demand begins to equalise.

“With the North Atlantic hurricane season now under way, even if the predicted low level of hurricane activity is realised, the outlook for [next year] might not be quite as bleak as may have been inferred from the January and April renewals,” the report says.

Some collateralised reinsurance markets are now showing pricing discipline by cutting capacity, and the recent swell in capacity – which has played a major role driving down pricing in peak zones – appears to have abated.

There has also been a significant increase in demand for Florida catastrophe capacity.

However, despite price softening, the reinsurer mergers and acquisitions “frenzy” continues.

Although there is an “unappealing short-term outlook” for nearly all companies in the industry, with diminishing underwriting and investment returns, such activity is helping to maintain high valuations, the report says.