A number of converging factors has created a buyers market in nearly all lines of business, according to a report from Willis Re.
These factors include rate reductions, new capacity and market entrants, low interest rates, greater retention of reinsurance premiums by large buyers, diminishing reserve releases, expansion in terms and conditions, and increasing regulatory oversight.
John Cavanagh, CEO of Willis Re, said: “The key influence on the 1 January renewals has been overcapacity triggered by a number of converging factors. Strong 2013 results have bolstered traditional reinsurers’ already strong balance sheets. New capital from non-traditional capital market sources has grown to reach $50 billion. These factors have been compounded by muted demand from buyers arising from the longer term trend of better regulation, which has in turn led to a better understanding and management of tail risk, as well as the trend of major insurance groups to retain more reinsurance premium volume and risk on their own growing balance sheets.”
The report also notes that soft market conditions are no longer unique to catastrophe business, with rates down on most lines. Pricing margins on excess of loss business have been compressed, and ceding commissions have increased on pro rata treaties for sought after clients with large ceded premium volumes.
Peter Hearn, chairman, said: “Faced with these market headwinds, reinsurers are adopting a variety of strategies. Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals. Others are expanding 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.”
