Economic turmoil more likely than natural catastrophes to spur market hardening: Willis Re

A sustained market hardening in the global reinsurance market is more likely to be caused by economic turmoil than catastrophe losses, according to Willis Re’s ‘1st View’ report.
Last year was the second-worst year for catastrophe losses (insured losses in excess of $100 billion and reinsured losses of more than $50 billion), with many of those catastrophe losses being “surprise” losses. But at the end of 2011 Q3, capital levels in the global reinsurance industry were only down marginally from the start of the year, Willis Re reported.
“The key to a sustained market hardening is more likely linked to the current economic turmoil, particularly in the Euro zone, as it works through to impact the capital bases of reinsurers,” a Willis Re release says.
The report also points to the increasing segmentation of the market, with rate movements being driven by individual loss history and perceived exposure movements rather than by an overall blanket increase.
“Rate movements are largely being driven by the immediate earnings challenge of 2011 rather than the classic capital shortage of an historic hard market rating turn,” a Willis Re release says.
Despite the reasonable levels of capitalization, the investment income outlook for all reinsurers is increasingly bleak. Returns continue to fall and these lower returns have still not fed through to the rating of long-tail classes, the release continued.
“The poor results of 2011 appear to be largely an earnings event, though insurance company managers are concerned that, should 2012 perform in a similar fashion, they will be facing capital issues in 12 months time,” said Peter Hearn, Willis Re’s chairman.