Willis Re: $16 Billion Catastrophe Tab Makes First Three Months of 2010
Broker's Latest Renewals Review Says Catastrophe ClaimsWill Hit Reinsurers' First Quarter Results
Worst Ever First Quarter for
Natural Peril Losses
London, UK, March 31, 2010 - An unprecedented US $16 billion in losses from the Chilean earthquake,
the European storm Xynthia and other natural catastrophes have made the first three months of 2010
the worst first quarter on record for such events, according to the latest renewals report from
Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH), the global insurance broker.
Willis Re's 1st View renewals report said that following a year of historically low frequency and severity
of losses and resulting excellent financial performance, the first quarter 2010 results of reinsurers will, for
the first time in many years, be worse than those of their primary insurance company clients.
The Willis Re report, titled "Calm Amid Calamity", tracks reinsurance rate movements across numerous territories and product
classes. The review said the difficult first quarter does not bode well for reinsurers because their
largest losses are coming from smaller markets, where they are less able to generate significant premium
volumes to accelerate post-loss payback. At the same time, losses in the first three months of
the year leave reinsurers exposed to the historically more loss-prone third and fourth quarters, Willis Re
said. Adding to the potential for future market volatility, some forecasters are now predicting a more-active-than-usual
North Atlantic hurricane season.
The report highlights two other potential areas of concern in the reinsurance arena: less plentiful reserve releases
and excessive exposure to sovereign debt. A close analysis of reinsurers'2009 performance found that results are
showing some evidence of reserving stress, with fourth quarter 2009 releases not as plentiful as in
earlier quarters. In addition, as a result of the financial crisis, many reinsurers have aggressively "de-risked"
their investment portfolios by investing in government debt as a seemingly secure alternative. This is starting
to raise concerns over excessive exposure to sovereign debt at a time when many governments are
under increasing fiscal strain, said Willis Re.
Other renewal trends highlighted in the report are:
Despite increasing uncertainty and loss activity, the reinsurance market has yet to react in terms of pricing,
conditions and capacity. The April 1, 2010 renewals have seen continuing modest risk-adjusted reductions and hardening
only in specific territories and classes with consistently poor results.
Capacity in all lines has been
ample as the issues of rate exchange volatility affecting capacity no longer have any impact.
acquisition activity has picked up following the Max Capital and Harbor Point deal and Willis Re
predicts the pace will quicken over the next six months as financial organisations that received government
bailouts seek to divest their insurance assets as part of the recovery process. Willis Capital Markets
& Advisory acted as exclusive financial advisor to Harbor Point in its announced merger of equals
with Max Capital.
"While one poor quarter, which is an earnings issue for reinsurers, will not be sufficient to trigger
a general market turn on its own, it is likely to stiffen reinsurers' resolve on renewals
later in the year as the size of the recent catastrophe losses develop and back-year reserve
releases reduce," said Peter Hearn, Chief Executive Officer of Willis Re.
"This is balanced by the remaining reinsurance capacity oversupply and the continuing difficulties companies face in achieving
any top line growth to offset claims and expense increases. Against this background, absent any other
major losses, buyers who will be renewing loss-free programs later in the year can continue to
budget for stability or modest reductions in their reinsurance costs," Hearn concluded.
Click here to read the full Willis Re 1st View renewals report.
Willis Group Holdings plc is a leading global insurance broker, developing and delivering 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 Associates serving clients in virtually every part of the world. Additional information on
Willis may be found at www.willis.com.