Global insurance broker Willis Group Holdings has released its analysis of the current state of the reinsurance marketplace. It also issued a revised announcement concerning secondary share sales by investors.
The 31 page report, available on the company’s Web site at: www.willis.com, includes a thorough discussion of global capacity and the major drivers across property, casualty, marine, aviation and other lines of business, as well as a detailed review of recent merger & acquisition activity in the sector.
The report concluded that the “the global reinsurance marketplace is starting to show signs of returning to some balance after a few years of general hardening. A breakdown of an overall market cycle into a number of separate specific cycles, by class, is increasingly apparent as capacity exceeds demand in some areas but is still insufficient in others.”
Willis listed the following highlights of the report:
– Capacity in short-tail classes is being influenced by the influx of new capital raised since 9/11 in Bermuda (approximately $8 billion) and Lloyd’s and by favorable results in the 2002 underwriting year.
– Lloyd’s opening capacity for 2003 was 14.4 billion GBP, an increase of 18% over last year’s opening capacity.
– On property catastrophe and risk excess of loss, increased supply of capacity has limited further price increases in many cases.
– Long-tail classes remain difficult, with increasing pressure on both rates and conditions. The worsening development of earlier underwriting years, developments in legal frameworks and poor to modest investment yields plague the sector. In this environment, newly capitalized reinsurers are reluctant to support some long-tail classes.
It noted that “The trend for increased transparency of risk information and the ability to model risk exposures is one of the key factors in achieving successful placements. Classes where ease of modeling, combined with the provision of transparent risk information are most prominent, are the classes where there is the greatest supply of capacity.
“Reinsurers, notwithstanding the newly capitalized companies, need to satisfy their shareholders with a good overall return for 2003. Failure to do so will lead to further pressure on long-tail classes and ultimately a reduction in choice for many reinsurance buyers.”
The company also announced that the secondary public offering by certain of its shareholders of 17,400,000 million shares of common stock has been increased to 21,526,100 shares and priced at $31 per share. The selling shareholders have also granted the underwriters an option to purchase up to 2,152,610 additional shares to cover over-allotments, if any.
The offered shares are being sold by Profit Sharing (Overseas), Limited Partnership, an affiliate of Kohlberg Kravis Roberts & Co. L.P. and Fisher Capital Corp. L.L.C. Willis did not issue any shares of common stock in the offering.