“Across-the-board” reinsurance hard markets unlikely: Willis

Factors contributing to a hard market are changing, with reinsurers’ total available capital no longer considered the only driver of reinsurance market softening or hardening, said Martin Sullivan, deputy chairman of Willis Group and CEO of Willis Global Solutions.
Sullivan offered a keynote speech during the PricewaterhouseCooper’s breakfast briefing during the annual Monte Carlo Reinsurance Rendez-vous. The Rendez-vous takes place in Monaco, France from Sept. 10-14.
Sullivan’s speech gave a broker’s view of capital availability, modelling advances and soft markets.
He said the previous three hard markets had been driven by a reduction of industry capitalization and short-term difficulty in rebuilding and accessing new capital.
“Today, these historic across-the-board hard market cycles are unlikely to be replicated, due to advances in actuarial and natural catastrophe modelling techniques attracting longer-term capital market investors,” a Willis press release cites him as saying.
Sullivan suggested it was unlikely reduced capitalization would be the sole factor in producing a hard market. It would take other factors as well, including economic factors, he said.
For example, he warned that if reinsurers faced reduced capitalization in tandem with economic factors such inflation and sovereign debt default, “all bets are off” and a global hard market would likely ensue.
“Barring this type of financial Armageddon, the current levels of overcapitalization may be reduced by losses and poor investment returns, but that should not return us to the bouts of capital starvation that drove market behaviour in some of the earlier hard markets,” he said.