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Willis Re: Reinsurance is the Only Stable Capital Available

Willis Re

Posted on 01 Apr 2009

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The majority of reinsurers reported relatively positive results and some underwriting profit despite poor investment returns in 2008, outperforming the wider financial services community. As a result, the reinsurance market stands out as the only capital market operating smoothly, with buyers able to access large quantities of contingent capital, according to a new report from Willis Re, the reinsurance broking arm of Willis Group Holdings (WSH), the global insurance broker.

Titled “Conserving Capital,” Willis Re’s “1st View,” its thrice yearly reinsurance market report, examines rate movements across numerous territories and product classes and includes detailed analysis from Willis Re’s product line experts.

“There is no doubt that reinsurers are being squeezed by investment performance, deteriorating Hurricane Ike losses and a growing need to increase prior year casualty reserves,” said Peter C. Hearn, CEO, Willis Re. “These pressures are also compounded by the extreme volatility of currency rates of exchange. However, despite these challenges, the increased demand for reinsurance which started at January 1 renewals, continues strongly to April 1 renewals and shows no signs of diminishing.”

Among the other key findings of the report are:

- Access to fresh capital remains limited mainly to Lloyd’s, which has outperformed in previous months and has access to a wider range of investors, including capital from private investors.

- The Catastrophe Bond Market, which stalled following the collapse of Lehman Brothers, has adjusted its product and reopened.

- Buyers are seeking diversification in their reinsurer counterparties, but capacity and price continue to play key roles in buyer decision-making.

- In some niche markets, where exposures are particularly challenging, such as Gulf of Mexico, there are signs that some clients are opting to drop cover, but as of January 1, a reasonable balance between affordability and coverage seems to be prevailing in the main.

To read the report in full, please go to: 1st_View_April_2009.pdf