Reinsurers under spotlight

Demand for reinsurance continues to grow but buyers are scrutinising the financial strngth of of their reinsures, Willis Re reports in Conserving Capital, the first of its three-times-a-year reinsurance market reports.

“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 Hearn, CEO. “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.”

Key findings of the report are:

• Access to fresh capital limited mainly to Lloyd’s.
• The Catastrophe Bond Market reopened.
• Buyers are seeking diversification in their reinsurer counterparties, but capacity and price continue to play key roles.
• In tough markets some clients are opting to drop cover.
• Buyers want to better understand their reinsurance trading partners’ financial security. Most reinsurers have increased disclosure.
• Buyers seek greater diversification in their reinsurer counterparties.
• Greater focus on policy terms and conditions, to match risk protection against expense.
• Rush for regulation may curtail debate on contentious aspects.
• The all-stock structure of the Max Capital and IPC merger may be model for other mergers and acquisitions.