Reinsurance prices remained stable in January 1 policy renewals, even in the face of above average insured losses last year — as abundant market capital generally offset upward pricing pressures.

Natural catastrophe losses for the first half of last year were $20 billion, which was below the ten-year average, however the final six months were above average, bringing the full year losses to more than $70 billion.

Reinsurance broker JLT Re estimated losses in the property-catastrophe market at more than $80 billion, making last year the fourth most costly catastrophe year in real terms. When 2018’s losses are added to the $150 billion of losses in 2017, they create the most costly two-year period for catastrophe losses — although when adjusted for inflation are nowhere near the losses seen in 2004-2005 period.

The subdued pricing environment was reflected in JLT Re’s global property-catastrophe reinsurance index, which fell 1.2 per cent at the start of the year. Since 2012, the single year-on-year uptick came in 2018 when the index improved 4.8 per cent.

Ed Hochberg, chief executive officer of JLT Re in North America, said: “Despite another active catastrophe year in the United States, property-catastrophe rate changes were modest.”

Meanwhile, Willis Re’s 1st Review noted that there were different experiences for accounts with peak peril exposure and poor loss records, and those with good loss records and non-peak exposures.

James Kent, global CEO of Willis Re, the reinsurance advisory business of Willis Towers Watson, said: “The quality of the client counterparty is a significant factor in risk selection by many reinsurers.

“Notably, European property-catastrophe renewals that benefit both from good loss records and a disciplined early renewal process have been able to achieve some risk-adjusted rate reductions, and similarly in the US, reinsurers’ support for the ‘preferred’ clients is evident in relatively muted renewal pricing on non-loss-impacted business.”

Mr Kent noted that some carriers have been pulling out of unprofitable lines or are seeking aggressive rate improvements on underperforming lines.

There is also pressure on the insurance-linked securities market after high returns in the wake of 2017’s losses did not materialise. In addition, more capital is trapped from “loss creep” and further substantial losses were generated by the secondary peril of wildfires last year.

“Some ILS products, most noticeably aggregate catastrophe and retro covers, have performed poorly for investors, thereby resulting in less available capital — although this is balanced by other ILS products that have continued to deliver acceptable returns,” Mr Kent said in his summary.

“The variation of individual ILS funds’ exposures to different product types is starting to impact the ability of many funds to attract new investors. However, as outlined in our recent Willis Towers Watson Global ILS survey, this is likely to be a challenge that the industry overcomes, as the long-term interest in ILS, particularly from pension fund managers seeking diversification, remains robust.”

Elsewhere JLT Re, in its look at renewal outcomes, said capacity constraints in the retrocession market were a dominant factor.

Bradley Maltese, JLT Re’s deputy CEO of UK and Europe, said: “After another year of significant losses and locked capital in the retrocession market, rates for loss-affected catastrophe layers were generally up by between 10 per cent and 20 per cent on a risk-adjusted basis, with aggregate covers falling towards the upper end of this range.

“Many clean occurrence retrocession programmes were renewed flat to up 10 per cent. Global and Lloyd’s direct and facultative catastrophe covers were less affected by 2018 losses and, after strong increases at last year’s 1 January renewal, rate changes in 2019 were typically down 2.5 per cent to down 7.5 per cent on a risk-adjusted basis.”