Rate reductions are slowing in the reinsurance market, a report by Willis Re said yesterday.

The international reinsurance advisory firm, part of Willis Towers Watson, added that the changes came as managers face “the buffers of tighter regulation, better pricing analytics and transparent shareholder expectations.”

The Willis Re report on the first quarter of the year, is entitled “Disciplined Softening”

In the report, John Cavanagh, Willis Re’s global chief executive officer, said: “While there is some divergence in individual companies’ reported results, in terms of underlying loss ratios, investment returns and reserve releases, 2016 overall has generated an acceptable, though reduced, return for the global reinsurance industry.

“It is clear that in the face of a soft market offering a limited number of acceptably priced opportunities, many reinsurers remain prepared to let their top-line revenue growth stall and are opting to return excess capital to their shareholders.”

The report added that — against that background and with little change in other market conditions — the renewal season which started at the beginning of April had “largely followed” the direction set in the January renewals.

Mr Cavanagh said: “While international buyers achieved slightly larger reductions as compared to US and Lloyd’s buyers, the extent of the reductions range from flat to mid-single digit reductions and not the low double-digit range which was seen 12 months ago.

“Gratifyingly for reinsurers, overall limits purchased have not reduced and some have increased as more buyers seek additional protection. Retentions have remained largely unstable.”

Mr Cavanagh added: “The renewal season has been challenging for new reinsurance capacity coming into the market.

“In addition to depressed pricing, most existing reinsurers have managed to renew their shares through a combination of client-centric underwriting and some relief now that rate reductions are abating.”

The report added that capital markets had maintained an “aggressive posture” which emerged at the end of last year, with many insurance-linked securities funds aiming to offset a decline in opportunities as existing catastrophe bonds mature.

“Capital markets are now often prepared to price more competitively for peak zone catastrophe risk and there is currently a differentiation in the pricing of catastrophe bonds compared to traditional markets,” Mr Cavanagh said.

“This erosion in the margin on catastrophe business puts additional stress on traditional reinsurers writing more diversified portfolios since they have been relying on higher margin catastrophe business to balance their overall portfolios.

“With results on many diversifying non-catastrophe classes now marginal, there is greater pressure on reinsurers to address the pricing in these classes.”