3 April 2014 News

Softening across all lines globally: Willis Re

Reinsurance rates softened across nearly classes and geographies in the April renewals, according to Willis Re.

1st View, a renewals report from Willis Re, the reinsurance division of Willis Group, said that positive 2013 results for traditional reinsurers and a seemingly unabated supply of capital from third party investors have added further to the oversupply of reinsurance capacity chasing muted demand.

John Cavanagh, chief executive officer of Willis Re, said: “The 1 April renewals have seen a softening of rates across nearly all classes and geographies which, in turn, has allowed buyers to achieve substantial savings in the cost of their reinsurance protections. Some buyers took the opportunity to buy more cover and some renewals saw an expansion in terms and conditions.

“The overriding target for most buyers, however, was to achieve price redctions or an increase in ceding commissions. Restructuring and consolidation of covers by some of the larger buyers continues to be a trend along with M&A consolidation causing further compression in price in favour of the buyer.”

Willis Re said that traditional reinsurers are continuing to work hard to optimise client relationships, capacity and technical underwriting capabilities to protect and, in some cases grow, their shares to withstand the challenges of competing with the ILS and collateralised.

These reinsurers have also increased efforts to manage their capital through increased share buy backs, special dividends and other techniques.

Despite the softening rate outlook, stock valuations of quoted companies remain attractively high. In fact, a number of companies are taking advantage through public share offerings to provide existing investors with an exit strategy.

Peter Hearn, chairman of Willis Re, said: “The current reinsurance market clearly favours the buyer. The cost of reinsurance is falling much faster than original rates in many classes and territories. Comfortable though this situation may be for many buyers, the nagging concern remains as to timing. When will a lower cost of reinsurance feed through in lower original rates and put primary companies’ margins back under pressure?”

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