Willis Re: Natural Catastrophe dominates 1.1.2012 Renewals with
modest change on other classes
London, UK, December 30, 2011 – With the majority of this year’s catastrophe
losses arising from unmodeled or inadequately modeled perils or territories,
reinsurers are being more forceful in their demand for greater transparency of data,
or looking to sub limit their exposures to manageable levels. This according to the
most recent renewals report by Willis Re, the reinsurance broking arm of Willis Group
Holdings (NYSE: WSH), the global insurance broker.
Risk management and global economic concerns are the themes of the 2012 Willis
Re 1st View report, entitled “Change is in the Wind”. The report states that following
the second worst catastrophe year for the market on record, with insured losses in
excess of USD100 billion and reinsured losses over USD 50 billion, there is work to
be done by the industry to better understand the nature of the natural catastrophes
which have caused “surprise” losses this year.
Willis Re’s findings point to the market being increasingly segmented, with rate
movements being driven by individual loss history and perceived exposure
movements, rather than by an overall blanket increase. The report found that rate
movements are largely being driven by the immediate earnings challenge of 2011
rather than the classic capital shortage of an historic hard market rating turn.
The report states that overall, at the end of the third quarter of 2011, capital levels in
the global reinsurance industry are only marginally down from the start of the year. If
2012 underwriting results return to profitability it is unclear if a sustained market
hardening will be seen. On this basis, the report claims, the key to a sustained
market hardening is more likely linked to the current economic turmoil, particularly in
the euro zone, as it works through to impact the capital bases of reinsurers.
James Vickers, Willis Re Chairman of International Business said,
“After a bruising year of natural catastrophe losses, many outside the traditional key
catastrophe zones, reinsurers have largely reacted as anticipated with differentiated
rating approaches driven by individual client and territory results. With the exception
of a few problem long tail classes reinsurers have concentrated on increasing prices
for natural catastrophe exposed covers which is leading to wide pricing differences
by class.”
Other renewal trends highlighted in the report include:
- U.S. January 1, 2012 renewals are moving up in line with increases indicated
by mid-2011 renewals but with greater differentiation by client and portfolio
reflecting both individual results and exposures.
- Improvements in pricing for natural catastrophe risks have attracted fresh
capital to the industry, primarily through specialized investment funds, as
opposed to capital increases for existing market participants.
- The new RMS 11 model for European Wind produced volatile results but it
was released too late to be taken into consideration for the 1st January
renewals.
-
Despite the reasonable levels of capitalization, the investment income outlook
for all reinsurers is increasingly bleak. Returns available continue to fall and
these lower returns have still not fed through to the rating of long-tail classes.
Commenting on the conclusions of the report, Peter Hearn, Chairman, Willis Re,
said,
“The poor results of 2011 appear to be largely an earnings event though insurance
company managers are concerned that should 2012 perform in a similar fashion they
will be facing capital issues in 12 months time. This has muted the traditional
response of buyers to price increases of reducing reinsurance purchases. However,
it has further highlighted the margin pressure between increasing reinsurance prices
and the ability of insurers to obtain commensurate price improvements on their
original policies at a time of weak economic growth”.
Click here to read the full Willis Re 1st View 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 Capital Markets and Reinsurance
expertise in a seamless, integrated offering that helps 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
help clients make better reinsurance decisions, access worldwide capital markets
and negotiate optimum terms. For more information, visit www.WillisRe.com.
About Willis
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries,
Willis develops and delivers professional insurance, reinsurance, risk management,
financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120
countries, with a global team of approximately 17,000 employees serving clients in
virtually every part of the world. Additional information on Willis may be found at
www.willis.com.
# # #