Titled, "Capital Secured," 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.
The report found the greater stability in the reinsurance market was brought about by initial signs of recovery in the financial markets and a lack of major underwriting losses in the first two quarters of 2009. Anticipating a challenging year marked by exchange rate volatility and a difficult retrocession market, reinsurers took aggressive steps early in the year to control their aggregates more tightly. According to Willis Re, these actions, coupled with the lower open market purchasing by residual markets in Florida and Texas, eased much of the capacity squeeze in the more demanding peak US property catastrophe zones.
In the property-intensive mid-year renewals, rate increases remained measured amid a lack of meaningful rate hardening in the primary market. Many primary insurers continue to face soft pricing, weaker demand and reduced investment yields at the same time that their prior-year reserve releases have largely run out, the report said. Positive price movement in the US Casualty markets remains constrained with a number of start-up insurers recently entering the fray and offering fresh capital.
Other “green shoots” of fresh capital also have appeared. The Insurance Linked Securities market is showing signs of life with $1.4 billion in catastrophe bonds being issued so far in 2009, along with a modest reappearance of sidecars and some capital increases, said Willis Re. Prices for new capital are still very high, owing largely to the constraints on the debt markets, but the report said “encouraging” appetite still exists for new risk structures.
Peter Hearn, CEO Willis Re said, “With very few exceptions, the reinsurance industry has managed to clear the hurdle of providing sufficient capacity at acceptable prices to their client base for this year. Nine months ago, this outcome was very much in doubt. Now, this relative stability will largely hinge on whether positive pricing trends emerge in the primary insurance markets and, of course, the level of major catastrophe and financial loss activity.”
Among the other key findings of the report are:
* Rate increases in the region of 10 percent to 15 percent were achieved in capital-intensive classes such as peak zone US Catastrophe.
* Merger and acquisition activity has started to pick up, as those with stronger balance sheets seek to adjust their portfolio mix and/or acquire platforms in markets previously difficult to access.
* There is a continuing disconnect between buyers and sellers in the Marine sector over the pricing of Gulf of Mexico energy-exposed business, with buyers looking to co-insurance and/or higher retentions as solutions to high relative prices.
* Rates outside US peak catastrophe zones have struggled to show much real increase as diversification of exposure remains a pricing driver.
To read the Willis Re 1st View Renewals Report, please go to: www.willis.com/Documents/Publications/Industries/Reinsurance/1st_View.pdf