Reinsurers are taking “robust defensive measures to maintain market positions recently eroded by new capital markets entrants,” with prices down 25 percent on some Florida property accounts, Willis Re reported today.

In addition, Willis Re said beyond softening U.S. property-catastrophe rates, the desire of traditional reinsurers to maintain their market positions is spilling over into other classes.

The broker finds that casualty markets are seeing substantial increases in capacity across the world and that casualty prices are softening even though there are concerns about the current low interest rate environment.

Willis Re reported these finding in a statement about its just published Willis Re 1st View 1 July renewals report, titled Supply Chases Demand. Highlighting the key finding, that statement said that despite the $30 billion impact of the Superstorm Sandy loss, the key battleground between traditional reinsurers and the capital markets is in U.S. property catastrophe.

In the statement released in conjunction with the report, John Cavanagh, Global CEO of Willis Re, said: “Traditional reinsurers’ defensive actions include offering price reductions, larger line sizes and, in some cases, broadening of cover by offering options such as multi-year agreements, extended hours clauses and additional reinstatements.”

He also said that capacity for aggregate cover is more widely available.

“As most programs are well over-placed, buyers are facing the challenge of signing down reinsurers’ shares,” he added.

The offering from collateralized markets has also continued to evolve, offering primary buyers increasingly flexible cover and minimizing their basis risk.

Peter Hearn, Chairman of Willis Re, said that the trend for traditional reinsurers to set up sidecars, “providing third-party capital access to the risk they are accepting, continues to expand,” and that the catastrophe bond market is on track to surpass the previous record high issuance in $ 7.2 billion in 2007.

“The challenge for Insurance-Linked Securities fund managers is how to source enough demand to satisfy investor demand for ILS products,” Hearn said.

The report also found that:

  • Losses caused by U.S. tornadoes and European floods during the second quarter will only have a modest impact on the global reinsurance market. “As it stands, it is not easy to see any end to the continuing softening of the global reinsurance market,” the broker said.
  • With the modest outlook for growth and improvements in underwriting profitability, many reinsurers are re-examining their capital management strategies in an effort to improve their overall results
  • The changing dynamics in the distribution of specialty and large commercial risks continued to evolve actively in the second quarter. A number of new initiatives were launched, the majority of which are aimed at direct and facultative markets.

Source: Willis Re