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Willis Re: Lower Loss Activity And Market Support For Improvement In Rating Levels Boosts Reinsurers’ Start To 2012

Reinsurers have seen more positive results in the first quarter of 2012 than in the previous two years according to Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH). However, lower levels of loss activity in both the US and International markets, and a gradual improvement in rating levels seen in the primary market, have been overshadowed by reinsurers’ disappointing 2011 result.

The Willis Re 1st View April Renewals Report, entitled “Measured Response” found that despite the market showing signs of positive development, most reinsurers remain hesitant to increase their portfolios, preferring to focus on managing underwriting volatility and conserving capital whilst waiting for signs of further improvement.

The report notes that some primary buyers are reluctant to manage increased reinsurance costs through reduction in purchases and are restructuring their programs to maintain retention levels, although this trend is not being seen in the larger U.S. primary companies, who are seeing a continuing increase in their property cat retentions.

Peter Hearn, Chairman of Willis Re, commented:

“Reinsurers remain focused. They are taking a highly segmented and increasingly disciplined approach to terms and conditions and are not seeking to apply blanket rate increases. In turn, this is leading to wider variations in rate movement by territory and class.”

Other findings covered in the report include:

  • The Thailand floods have caused reinsurers to seek greater transparency and control particularly over contingent business interruption. It may take a number of years until final numbers are determined, but the technical and psychological impact of this loss on the global insurance industry will far outweigh the ultimate financial loss for years to come.
  • Reinsurers are applying tighter limits on natural perils, including lower event limits on pro rata treaties.
  • In an improving rating environment, new capital continues to be drawn to the global insurance industry, but on a different basis than previously. The traditional model of starting up companies post-major events appears to be falling out of favor. Investors are now concentrating on accessing the purest forms of (re)insurance risks through specialist funds and other structures.
  • Mergers and acquisitions remain active, notwithstanding the uncertain economic backdrop and the challenge of low valuations which remains a hurdle for deal completion.

In the report’s opening letter, Hearn comments on the conclusions of the report and their impact on reinsurers. He writes:

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