2009-07-01

By Editor, CIR

Gloomy predictions of rate hikes and capacity shortages for July 1 reinsurance renewals have not been borne out by events, reports Willis Re.

The reinsurance broking arm of Willis Group finds "sufficient capacity in virtually all areas and a reasonably orderly rating environment".

The report, Capital Secured, Willis Re's 1st View, finds that greater stability in the reinsurance market was thanks to initial signs of recovery in the financial markets and a lack of major underwriting losses in the first two quarters of 2009.

Anticipating exchange rate volatility and a difficult retrocession market, reinsurers "took aggressive steps early in the year to control their aggregates more tightly". Coupled with the lower open market purchasing by residual markets in Florida and Texas, this eased much of the capacity squeeze in the more demanding peak US property catastrophe zones.

Many primary insurers still face soft pricing, weaker demand and reduced investment yields just as their prior-year reserve releases have largely run out, the report says. Positive price movement in the US Casualty markets remains constrained with several start-up insurers offering fresh capital.

Other 'green shoots' of fresh capital include the Insurance Linked Securities market, with USD1.4 billion in catastrophe bonds being issued so far in 2009, along with a modest reappearance of sidecars and some capital increases. Prices for new capital are still very high, owing largely to the constraints on the debt markets, but the report said "encouraging" appetite still exists for new risk structures.

"With very few exceptions, the reinsurance industry has managed to clear the hurdle of providing sufficient capacity at acceptable prices to their client base for this year," says Willis Re chief executive Peter Hearn.

"Nine months ago, this outcome was very much in doubt. Now, this relative stability will largely hinge on whether positive pricing trends emerge in the primary insurance markets and, of course, the level of major catastrophe and financial loss activity."

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