Reinsurers are taking robust defensive measures to maintain market positions recently eroded by new capital markets entrants, according to Willis Re’s 1 July renewal report.
The report, entitled Supply Chases Demand, finds that despite the impact of the $30 billion Superstorm Sandy loss, the key battleground in the US property catastrophe where capital markets have been most active so far.
John Cavanagh, global CEO of Willis Re, said: “Traditional reinsurers’ defensive actions include offering price reductions, larger line sizes and, in some cases, broadening of cover by offering options such as multi-year agreements, extended hours clauses and additional reinstatements.”
“Capacity for aggregate cover is also more widely available. As most programmes are well over-placed, buyers are facing the challenge of signing down reinsurers’ shares.”
The offering from collateralised markets has also continued to evolve, offering primary buyers increasingly flexible cover and minimising their basis risk.
Peter Hearn, chairman of Willis Re, commented: “The trend for traditional reinsurers to set up sidecar-type structures, providing third-party capital access to the risk they are accepting, continues to expand. Similarly, the catastrophe bond market continues to grow rapidly and is on track to surpass the previous record high issuance in 2007 of $7.2 billion. With the strong inflow of new funds, the challenge for Insurance-Linked Securities (ILS) fund managers is how to source enough demand to satisfy investor demand for ILS products.”
The report finds that this is proving challenging, as growth in the US catastrophe market remains modest, despite the increasing competitiveness of price as compared to traditional reinsurance products.
