Willis Re January Renewal Report Finds ‘Disciplined Softening’ in Market

December 31, 2009

“Orderly Softening” is the title of the latest edition of Willis Re’s “1st View.” The reinsurance division of Willis Group Holdings publishes the market review three times each year, examining reinsurance rate movements across numerous territories and product classes.

The latest edition concludes that “strong reinsurance underwriting profits, a recovery in the global investment markets and a lack of premium growth for primary underwriters have resulted in a disciplined softening of reinsurance pricing in the January 1, 2010 renewal season.”

The just-released edition of the report found that reinsurers have “generally maintained a responsible underwriting attitude towards their own capital suppliers, as well as giving some recognition to their clients’ requests over the January 1 renewal season.” This disciplined rating approach, according to Willis Re, “reflects reinsurers’ concern that the excellent 2009 underwriting results are less due to attractive pricing than a below average pattern of natural catastrophe and man-made losses.”

Willis Re CEO Peter Hearn noted: “Despite global economic headwinds, the reinsurance industry has enjoyed one of its most profitable underwriting years for a number of years. This is due to the recovery on the asset side of reinsurers’ balance sheets in line with the strong performance of global markets in 2009. The position, however, is worse for reinsurers’ clients, where stagnant premium growth is pressuring expense ratios, particularly in mature markets. Reinsurers have listened to these concerns and responded sensibly with measured premium reductions.”

Willis Re listed other key findings discussed in the report as follows:
— Rate reductions have been easier to achieve on growing portfolios where reinsurers have been more flexible about accepting increased exposures for a similar premium volume. Conversely, on stable and reducing portfolios where buyers have been seeking reductions in pure monetary premium amounts, reinsurers have shown less flexibility to maintain their own premium volume.

— The main area of pricing inadequacy for most reinsurers remains long-tail classes, especially in the US. Despite many calls for a market hardening, no turn has emerged in the US market at the January 1, 2010 renewals, other than in financial lines.

— The catastrophe bond market is recovering, helped by a convergence in pricing between traditional reinsurance structures and catastrophe bonds, coupled with the recovery in global investment markets. The total placed limits for catastrophe bonds in 2009 in aggregate is US$ 3.4 billion, a little larger than the 2008 figure of US$ 2.73 billion.

— With the background of a continued softening, together with replenished capital bases, the Mergers & Acquisitions and capital management trend which emerged in the second half of 2009 will likely accelerate during the first half of 2010, says Willis Re.

“When many other financial markets were in turmoil over the past year, the reinsurance industry managed to meet its client requirements in virtually every case. The disciplined actions taken by reinsurers at the January 1 renewals reinforce the fact that the market will continue to provide clients with secure long-term support in the years to come,” Hearn concluded.

Source: Willis Group Holdings – www.willis.com

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