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Willis Re: New capital is a threat to reinsurers

LONDON, UK April 2, 2013 – Many traditional reinsurers now see the flow of capital coming into the reinsurance market as a direct threat to their existing portfolios, according to Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH).

The Willis Re 1st View April Renewals Report, entitled “Capital Overflow,” notes there is currently around $35 billion of capital that has entered the reinsurance market from a variety of sources. The volume of capital entering the market is also increasing.

In the report’s opening letter, Peter Hearn, Chairman of Willis Re, writes: “While some reinsurers are considering how to respond, others are moving ahead with the development of third party capital management propositions to offer their own skills and platforms as fund managers.”

This influx of new capital could also have a significant impact on the post-event response from the global reinsurance market. Historically, following a major loss, new reinsurance companies have been formed through the creation of permanent capital structures, whereas today new capital flows into the market, in a more fungible manner.

The report also notes that overall global reinsurance premium volume is being squeezed by a combination of M&A activity and higher retentions by larger insurers.

Other areas of concern for reinsurers include:

  • Sluggish growth in mature markets is not yet being offset by growth in emerging markets
  • Changes in primary market distribution models are effectively concentrating premium into the hands of fewer larger reinsurers
  • Access to risk to drive growth aspirations

Hearn commented: “Against this background, the outlook for many traditional reinsurers is challenging, with profit margins coming under pressure during 2013.”

Other points of note include:

  • Overall pricing is flat to slightly down on loss-free lines of business
  • Major Japanese reinsurance buyers have recognized the support they obtained from their reinsurers over the difficult renewals of 2011 and 2012. As a result, they have been rewarded with significant levels of additional capacity. Pricing was either risk- adjusted flat or down across all lines
  • Early indications of the June 1st 2013 Florida market renewals indicates more aggressive pricing

Click here to access the full report.

About Willis Re
One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit www.willisre.com.

About Willis
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 17,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics, modeling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website, www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.