2009-04-01

By Editor, CIR

The reinsurance market is the only capital market still operating smoothly, with "large quantities of contingent capital" still available, reports Willis Re.

The reinsurance broking arm of Willis Group reports that reinsurers generally outperformed the wider financial services community in 2008, with relatively positive returns and some underwriting profit despite poor investment returns.

The latest edition of Willis' thrice-yearly market report Conserving Capital reviews rate movements and various product classes.

"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," says Peter C. Hearn, chief executive of Willis Re.

"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."

Among the other key findings of the report are:

- Access to fresh capital remains limited mainly to Lloyd's, which has outperformed in previous months and has access to a wider range of investors, including capital from private investors.

- The catastrophe bond market, which stalled after the collapse of Lehman Brothers, has adjusted its product and reopened.

- Buyers are seeking diversification in their reinsurer counterparties, but capacity and price still play key roles in buyer decision-making.

- In niche markets with challenging exposures, such as Gulf of Mexico, some companies have dropped cover but "a reasonable balance between affordability and coverage" applied to most January 1 renewals

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