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Refined pricing approach lifts reinsurers

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Reinsurance rates are stabilising at a higher level after years of natural catastrophe losses, according to a Willis Re report.

Reinsurers’ efforts to recover profitability through higher prices are widening the gap between Australian primary insurers with strong operating models and those unable to accurately forecast their loss estimates from natural catastrophes.

The report says reinsurers “continue to take a client-by-client approach to pricing and support programs, with a focus on supporting key relationships. [They] are recognising differences in buyers’ historical buying philosophies.”

The broker’s Australian CEO Cameron Green says the more reinsurers “understand what’s going inside a client’s business, the better the result is, even if it’s loss-impacted”.

“If a client presents a very clear strategy, a very clear position to its reinsurance markets, we have found the reinsurers have wanted to work with that sort of client more,” he said.

“It’s case by case, client by client, because each presents a slightly different case to the reinsurance market.”

Willis Re warns some reinsurers are reducing capacity in loss-affected layers of the Australian market where rates are perceived to be inadequate.

“The reinsurers are sitting on some pretty bad results – they’ve been on fairly thin yield for several years,” Mr Green said.

The report says: “The reinsurance market’s resolve to seek better terms is underpinned by the continued loss development of the major 2017 and 2018 natural catastrophe events.

“Compounding this loss development is the continuation of medium-sized losses, both man-made and natural.”