Willis Re 1st View
Willis Re has today published its 1st View on current reinsurance market conditions.
1 April is an important anniversary for Japanese contracts. There were no adverse developments in the losses reported for the March 2011 Earthquake that needed to be factored into renewals and both buyers and sellers of reinsurance have a clear understanding of where the loss is likely to end up. Capacity is plentiful, with rates flat or down by 2.5%.
Although many catastrophe exposed reinsurance policies in the USA do not renew until June and July, some are renewed at this time, and Willis reports downward pressure on pricing, in spite of the impact of Superstorm Sandy. For programmes with no catastrophe losses, rate reductions of between 5% and 10% are being achieved, but loss hit programmes are paying increases of up to 10%.
The report is entitled ‘Capital Overflow’ and emphasizes that, in spite of 2012 being the third worse year for natural catastrophe losses, reinsurers produced very good results, their capital position is strong, and new capital continues to flow into the global reinsurance market.
The new capital is seen as a threat to traditional reinsurers, whose growth aspirations are being frustrated by a number of additional factors, including sluggish economic conditions and the larger insurers retaining more risk based on revised capital management strategies. Buyers of reinsurance are turning increasingly to non-traditional products such as catastrophe bonds, and this is fuelling price competition.
Willis describes the outlook for many reinsurers as ‘challenging’ with profit margins coming under pressure in 2013. The real test will come with the forthcoming mid-year renewals.