April 1, 2009 by Canadian Underwriter
The reinsurance market stands as the only capital market operating smoothly, with buyers still able to access large quantities of contingent capital, according to a Willis Re report.
Reinsurers reported poor investment results for 2008. At the same time, a majority of reinsurers were able to produce some underwriting profit, resulting in overall positive results, according to Willis Re’s 1st View report, Conserving Capital.
Although reinsurers’ 2008 returns were down markedly from 2007, relative to the wider financial services community, reinsurance companies performed well during a time of intense turmoil, the report notes.
Reinsurers are being squeezed by investment performance, deteriorating Hurricane Ike losses and a growing need to increase prior-year casualty reserves, according to Peter C. Hearn, CEO of Willis Re.
The pressures are also compounded by extreme volatility of currency rates of exchange.
Other key findings in the report include:
• access to fresh capital remains limited mainly to Lloyd’s, which has outperformed in previous months and has access to a wider range of investors, including capital from private investors;
• the catastrophe bond market, which stalled following the collapse of Lehman Brothers, has adjusted its product and reopened;
• buyers are seeking diversification in their reinsurer counterparties, but capacity and price continue to play key roles in buyer decision-making; and
• in some niche markets where exposures are particularly challenging (such as the Gulf of Mexico), some clients are opting to drop cover. But as of Jan. 1, a reasonable balance between affordability and coverage seems to be prevailing in the main, Willis Re says.