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.
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.
# # #