Low natural peril loss in parts of Europe creating rating pressure in loss free territories: Willis Re

Increased capacity, competition and changing market dynamics have created a buyer’s market for European cedants, notes Willis Re, which expects that loss free rates will likely be down 5% to 10% at January 2014 renewals.

A combination of market conditions and changing reinsurance-buying patterns are driving reinsurers to offer more flexibility and tailored solutions to European clients, notes a statement issued Monday by Willis Re, the reinsurance arm of global risk advisor, insurance and reinsurance broker, Willis Group Holdings plc.

“With large parts of Europe so far experiencing another year of exceptionally low natural peril loss activity, reinsurers are facing significant rating pressure on catastrophe programs in loss free territories on the back of the excellent 2012 and 2013 results,” Tony Melia, CEO of Willis Re International, says in the statement.

“Absent of a major loss event, we expect risk adjusted reductions of 5% to 10% for straightforward loss free property catastrophe business with the reductions on individual programs being influenced by program history and perceived profitability,” Melia continues.

He notes that cedants should take advantage of flexibility by reinsurers and their willingness to provide company-wide solutions to protect against earnings volatility alongside capital protections. “These, together with the use of reinsurance structures to consolidate risk appetites, are the underlying drivers of changing reinsurance strategies in the industry,” Melia says.

Willis Re reports that reinsurers are also reviewing their view of risk on loss-affected programs. This, along with the history of the placement and individual loss experience, will determine the pricing level at renewal, the statement adds.

“Even loss-affected programs will benefit from the current soft market conditions and will receive more modest adjustments than during previous pricing cycles,” Melia says. “Above all, though, the current market environment enables cedants to consider buying the reinsurance that they want, in addition to what they need.”