Reinsurers are taking robust defensive measures to maintain market positions recently eroded by new capital markets entrants, according to reinsurance risk advisor and broker Willis Re, a division of Willis Group Holdings plc.
The Willis Re 1st View 1 July renewals report, entitled Supply Chases Demand, finds that despite the impact of the US$ 30 billion Superstorm Sandy loss, the key battleground is in U.S. Property catastrophe where capital markets have been most active so far.
John Cavanagh, Global CEO of Willis Re, said: "Traditional reinsurers' defensive actions include offering price reductions, larger line sizes and, in some cases, broadening of cover by offering options such as multi-year agreements, extended hours clauses and additional reinstatements. Capacity for aggregate cover is also more widely available. As most programs are well over-placed, buyers are facing the challenge of signing down reinsurers' shares."
The offering from collateralized markets has also continued to evolve, offering primary buyers increasingly flexible cover and minimizing their basis risk.
Peter Hearn, Chairman of Willis Re, commented: "The trend for traditional reinsurers to set up sidecar-type structures, providing third-party capital access to the risk they are accepting, continues to expand. Similarly, the catastrophe bond market continues to grow rapidly and is on track to surpass the previous record high issuance in 2007 of US$ 7.2 billion. With the strong inflow of new funds, the challenge for Insurance-Linked Securities (ILS) fund managers is how to source enough demand to satisfy investor demand for ILS products."
The report finds that this is proving challenging, as growth in the largest catastrophe market, the United States, remains modest, as does the take up rate of capital market solutions in other markets - despite the increasing competitiveness of price as compared to traditional reinsurance products.
The softening in U.S. Property catastrophe rates and traditional reinsurers' desire to maintain their market positions is spilling over into other classes. The report finds that casualty markets are seeing substantial increases in capacity across the world and, consequently, prices are softening even though there are concerns about the current low interest rate environment.
The report also found that:
- Rates are down as much as 25 percent on some Florida Property catastrophe accounts
- Losses caused by U.S. tornadoes and European floods during the second quarter will only have a modest impact on the global reinsurance market. As it stands, it is not easy to see any end to the continuing softening of the global reinsurance market
- With the modest outlook for growth and improvements in underwriting profitability, many reinsurers are re-examining their capital management strategies in an effort to improve their overall results
- The changing dynamics in the distribution of Specialty and large commercial risks continued to evolve actively in the second quarter. A number of new initiatives were launched, the majority of which are aimed at direct and facultative markets
Please click here to view the report.
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One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit www.willisre.com.