Influx of new capital a threat to reinsurers: Willis Re

An increased flow of capital into the reinsurance market can be seen as a threat by traditional reinsurers, notes the latest renewals report from Willis Re.

There is currently about $35 billion of capital that has entered the market from various sources, notes the company’s 1st View April Renewals Report, entitled “Capital Overflow,” which also says the volume of capital is increasing.

“While some reinsurers are considering how to respond, others are moving ahead with the development of third party capital management propositions to offer their own skills and platforms as fund managers,” Peter Hearn, chairman of Willis Re wrote in the report’s opening letter.

The company argues that the increase in new capital could also have an impact on post-event response from the global reinsurance market.

“Historically, following a major loss, new reinsurance companies have been formed through the creation of permanent capital structures, whereas today new capital flows into the market, in a more fungible manner,” a statement from the company noted.

Overall premium volume for the market is also being “squeezed” by merger and acquisition activity and higher retentions by large insurers, Willis Re noted.

“Changes in primary market distribution models are effectively concentrating premium into the hands of fewer larger reinsurers,” the report adds.

Slow growth in mature markets is also not yet being offset by growth in emerging markets, the report says.

“The 1 April market rate movements have not yet fully reflected the changing market sentiment,” Hearn wrote. “However, we are seeing early indications for renewals over the next few months which may be a more accurate reflection of market sentiment.”

The report also notes that in the United States, downward pressure on pricing is continuing despite the effects from Hurricane Sandy.

The full report is available on Willis Re’s website.