Reinsurance market is “running on empty” Willis Re warns

Reinsurance rates have continued to fall despite major losses from the Chile earthquake and storms in Australia in the first quarter of 2010, Willis Re reports. Chilean-specific renewals grew 40% to 70%, but they were the exception.

Titled “Running on Empty,” the Willis Re 1st View report for the 1 June and 1 July renewals found no general market increases in property catastrophe lines. Yet its claims total losses are probably sufficient to erode the entire 2010 Catastrophe Excess of Loss premium base outside of the US.

Prices have continued to gradually decline because of excess capital, stable investment returns and limited growth prospects. But Willis warns soft pricing could have a huge impact on the global reinsurance market in the event of a major hurricane or a similar catastrophe..

Peter Hearn, CEO, said, “There is a concern that the longer the wait for any upturn in the reinsurance market, the more abrupt it will be once it eventually arrives.”

Report main findings

  • Casualty pricing remains generally soft and rates have continued to decline, though with some territorial variability.
  • Competition remains fierce, with substantial capacity chasing premium volume in many lines of business, but most particularly in areas of perceived diversifying risk, such as the Middle East.
  • US property renewals performed as expected, with significant rate reductions, as high as 25 percent, being obtained in Florida.
  • In recognition of excess capital, some companies are redistributing their capital through share buy backs and special dividends, but major M&A activity remains muted.
  • Reinsurance capacity from Capital markets is gradually increasing, and the products being structured are increasingly attractive for issuers, both in terms of coverage and pricing.