Willis Re reports ‘significant rate reductions’ in reinsurance

Some property and casualty reinsurance markets have had “significant rate reductions” during the June 1 and July 1 renewals, while there is an “abundance” of capacity of political risk coverage “chasing less business” and outstanding catastrophe bond issuance has reached US$21 billion, Willis Re Inc. suggested in a recent report.

Willis Re, the reinsurance broker subsidiary of London-based Willis Holdings Group plc, released its 1st View Renewals Report on Tuesday.

“The June 1 and July 1, 2014 renewals have seen little change in the current market dynamics,” Willis Re stated. “Excess capital supply, chasing muted demand, is leading to significant rate reductions and, in some cases, an expansion in terms and conditions.”

The report included comments on different territories, though not in Canada. It also included tables listing rate change trends. One table listed property rate changes, in nine territories, broken down by pro rata commission, risk loss free % change, risk loss hit % change, catastrophe loss free % change and catastrophe loss hit % change. The catastrophe loss free % change in Britain was -15% to -25% while in the United States nationwide it was -10% to -20%. Willis Re lists Florida as a separate territory, where the catastrophe loss free % change was -15% to -25%.

“The interest from the capital markets remains intense, and while many programs are still mostly placed with traditional reinsurers, the move towards a greater involvement from the collateralized reinsurers and catastrophe bonds continues at a strong pace,” Willis Re stated of the U.S. nationwide market.

Willis Re noted that year-to-date in 2014, new non-life catastrophe bond issuance has reached US$5.6 billion, while the total outstanding amount is US$21 billion.

“Despite the growth in catastrophe bond issuance, there are signs that in the softening conditions which impact risk/reward dynamics, new investment is slowing and we may be approaching dynamic equilibrium at current spread levels,” according to the report.

“Much of the competition has also been driven by the traditional reinsurance markets,” Willis Re added. “Continuing the trends seen at reinsurance renewal points in January and in April, buyers are reaping the savings offered by the market and are not generally seeking to recycle the saved premium spend back in to increased reinsurance purchase.”

With political risk coverage, “there remains an abundance of insurance capacity chasing less business which, in turn, has led to ongoing price softening,” Willis Re stated in the report. “Recent developments and unrest in Ukraine/Russia and Iraq potentially give rise to losses with initial incident reports starting to surface; to what extent they will impact the market/pricing is still unclear.”