Traditional reinsurers have taken “defensive actions” against alternative-capital competition, meaning the increased supply of capital created through insurance linked securities (ILS) is chasing slower growth in demand, especially in the U.S. Property Catastrophe insurance market, a new report says.
Willis Re, in its “1st View“ July 1 renewals report, says that despite some losses, including $30 billion from Superstorm Sandy, reinsurers have not been willing to cede longstanding markets to capital investors.
Willis Re Global CEO John Cavanagh says besides cutting prices, some of the actions reinsurers have taken include “offering options such as multi-year agreements, extended hours clauses and additional reinstatements. Capacity for aggregate cover is also more widely available.”
As a result of reinsurers' actions, as well as investor demand, fund managers have been left to scramble to markets for the capacity the investment community has created. Willis Re Chairman Peter Hearn says, “With the strong inflow of new funds, the challenge for ILS fund managers is how to source enough demand to satisfy investor demand for ILS products.”
The report finds that:
- Rates are down as much as 25 percent on some Florida property catastrophe accounts and down as much as 20 percent nationally.
- Expected losses from U.S. tornadoes and European floods during the second quarter of this year should have modest impact on the global reinsurance market.
- Reinsurers are re-examining their capital-management strategies with an eye toward taking on greater investment risks to increase yield.
- The report also says that “for the first time since 9/11, the increase in primary rates in the U.S. is outpacing reinsurance rating movement.
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