April reinsurance renewals show plenty of capacity and capital

Reinsurers appear to be experiencing an increasingly competitive market in 2008, with the greatest rate reductions evident in smaller markets, according to Willis Re’s April renewals review.
The reduction in the smaller markets is driven by an increase in both the number and capacity of regional reinsurers, as well as by a continuing appetite for diversification by larger global reinsurers, said Peter Hearn, CEO, Willis Re.
In the United States property market, there has been high loss in the risk market in 2008 Q1, although a large proportion of these losses fall within the onshore energy sector, Willis Re reports.
The catastrophe sector appears to be the most competitive sector within the U.S. property reinsurance segment, with plentiful capacity for adequately priced business. “There are some signs that cedants may be dropping retentions as pricing continues to lower, but supply materially outweighs demand,” says the Willis Re report.
Reinsurers are cutting back their capacity in the pro rata sector and looking to reduce commissions. This reflects the fact that pricing and terms and conditions on the original business are falling away quickly, Willis notes in its report.
While reinsurers saw strong returns in 2007, partly due to investment results, these will likely be eroded in 2008 due to the ongoing turmoil in global financial markets, Hearn said.
Despite the lack of major catastrophe activity to date this year, a number of large risk losses in 2008 Q1 have already affected results. “This may be an omen of things to come when the Atlantic storm season is upon us.”