Reinsurers face ‘continuing market headwinds’ in 2014: Willis Re

Reinsurance carriers will face “headwinds” in 2014 as they are pressured to change contract conditions, while investors continue to buy cat bonds and the North Atlantic hurricane season was “virtually non-existent” in 2013, Willis Re Inc. stated in a report released Thursday.

“Having successfully navigated a challenging year in 2013, reinsurers are faced with continuing market headwinds going into 2014,” wrote Willis Re chairman Peter C. Hearn and CEO John Cavanagh in an introduction to the company’s 1st View Renewals Market report, published Thursday. “2014 is going to test the skills of reinsurers and intermediaries alike as buyers look to exact continued price benefit in a softening market.”

Willis Re is the reinsurance division of London-based Willis Group Holdings plc.

“2013’s underwriting performance is not reflective of strong market pricing and restrictive terms and conditions, but rather from a paucity of natural and man-made catastrophes,” Hearn and Cavanagh wrote. “2013 natural catastrophes were half of what was experienced in 2012. Specifically, the North Atlantic hurricane season was virtually non-existent with the lowest total of named storms since 1982.”

But this year, Willis Re suggests, there will be “pressure” on reinsurance contract conditions.

“Expansion of hours clauses, adoption of less punitive reinstatement provisions and examples of expanded coverage for terrorism, while beneficial to buyers, can have an insidious impact on losses,” according to Willis Re. “Experienced reinsurers will remember that the relaxation of terms and conditions more so than price reduction caused the real damage in the last soft market cycle.”

The United States is facing a softening market “as increased capacity from non-traditional capital providers in conjunction with retained earnings from a benign catastrophe year is putting pressure on traditional reinsurers to offer significant price reductions to compete for incumbent business,” Willis Re noted.

Willis Re pegged bond issuance in 2013 at US$7.1 billion.

In Canada, overland flood coverage for homeowners has been “a major talking point, with some insureds receiving ex-gratia payments.” Willis Re cited the floods last June in southern Alberta, as well as the July 8 rainstorm in Toronto, noting the losses from the ice storm three days before Christmas are “still being assessed,” but that the freezing rain “rounds out a poor year” in Canada.

The market in Germany was “impacted by significant natural catastrophe losses,” Willis Re noted, alluding to Hailstorm Andreas July 27-28 and rainfall in early June that caused flooding on the Elbe and Danube rivers in Central Europe.

“Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals,” according to the report. “We have seen other reinsurers expand into Specialty lines and many have developed multi-channel capacity offerings seeking to use their underwriting expertise to deploy capacity on behalf of capital markets.”

Willis Re publishes its renewals report three times per year.