Reinsurance pricing and terms continue to soften in many sectors, but other sectors are going through the worst experience in some time as terms and conditions tighten substantially, according to a recent report on the market.
In its review of the reinsurance marketplace after the July 1 reinsurance renewals, Willis Group Holdings' Willis Re division said it can now assert that what it calls the “Tale of Two Markets” has become even more pronounced.
While there is extensive softening in other areas such as marine, energy and catastrophe-exposed American and Caribbean property, cedents are experiencing the worst of times, with a substantial tightening of terms and conditions. Capacity in these difficult sectors remains inadequate, compounded by the shortage of retrocessional reinsurance, thus heralding the first truly hard market in over a decade.
Among Willis Re's key findings:
o June-July renewals confirmed earlier signs of an industrywide accommodation of the factors driving the hard market in marine, energy and U.S. catastrophe-exposed property sectors.
o Substantial catastrophe losses for the past two years have resulted in insolvencies and significant recapitalization.
o Key industry constituents are re-evaluating the environments in which they operate and developing new governing assumptions.
o Rating agencies are employing more conservative and increasingly stringent parameters to evaluate catastrophe management protocols.
o Reinsurers are under pressure to reduce their aggregate and diversify their writings–rapidly constricting capacity in key zones and lines of business.
o Capital market alternatives have in reality proved insufficient to attract investor interest, despite posturing earlier this year that they would solve the capacity crunch in the traditional reinsurance market.
Peter Hearn, Willis Re's chief executive officer, said in a statement, “Although we do anticipate continued and increasing influence from the capital markets and other alternative products, the outlook in the immediate term remains uncertain and highly volatile.”
He added, “Another heavy Caribbean-U.S. 2006 storm season, or any other substantial global catastrophe, will have a large bearing on the 2007 reinsurance catastrophe market. It is likely that such an event will accelerate the re-deployment of capital and make it much more difficult to secure traditional reinsurance protection.”
The complete report is available at: www.willis.com/news/Publications/WillisReviewJuly2006.pdf.
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