Willis Re: Superstorm Sandy Impacts Downwards Pricing Pressure on Reinsurers and Marine Classes Suffer Worst Year in
Recent History at 1.1. Renewals
London, UK, December 31 2012 - With natural catastrophe losses for 2012 estimated at fifty percent less
than last year’s losses of $120 billion, most reinsurers are not facing any material capital impact
and remain within their annual catastrophe budgets. This has resulted in stabilisation of rates on property
classes and no blanket rate increases at 1.1., according to the January 2013 renewals report from Willis Re, the reinsurance arm of Willis Group Holdings (NYSE:WSH), the global insurance broker.
The 1st View report, entitled ‘Reinsurers Clear the Sandy Hurdle’ finds that, in general, International rates for
Property Catastrophe business are risk adjusted flat to -5% and U.S. rates for Property Catastrophe are
risk adjusted flat to -5% on loss free accounts, and +10% on loss impaired accounts.
In the report’s opening letter, Peter Hearn, Chairman, Willis Re and John Cavanagh, CEO, Willis Re comment:
“In the absence of Superstorm Sandy, reinsurers would have found it difficult to resist buyer pressure
for further concessions. As such, Sandy’s impact has helped to stabilize market pricing on an overall
basis and reinsurers have largely delivered to their clients in terms of capacity and continuity.”
According to the report, internationally, Sandy has caused little impact, and despite the addition to the market
of new capital and promising 2012 underwriting results it is the repercussions of the global financial
crisis which still influence conditions and pricing in the sector: investment returns are dwindling, primary companies
in most mature markets are finding growth difficult and larger primary insurance groups are restructuring the
way they buy reinsurance.
The report highlights that 2012 has been particularly difficult for the Marine market, which has suffered one
of its worst underwriting years in recent history. Already suffering from the Costa Concordia and the
deterioration of the Rena loss from 2011, Superstorm Sandy is widely expected to be the largest
ever Marine loss with a disproportionate impact on the Marine market. The report states that there
are large losses coming from yachts and pleasure craft, general cargo, imported cars, specie and inland
Marine. In addition, the 1.1. 2013 Marine renewals are especially late due to uncertainty surrounding losses
emanating from Sandy.
Many buyers have increased retentions on loss hit programs to help mitigate rate increases which are a
minimum of +15%, even on loss-free offshore Energy excess of loss contracts.
The P&I market is seeing minimum of 10% increases with International Group Reinsurance Program +40%. P&I Clubs
are passing on increased reinsurance costs via original General Increases in the range of +7.5% to
Other renewal trends highlighted in the report include:
- The capital base of the global reinsurance industry remains adequate and has benefitted from an accelerating inflow
of new capital, particularly from long term investors drawn to event risk as an alternative non
correlated investment class
- It is a competitive environment for catastrophe bond issuance with third party capital
activity picking up and broadening as investor demand outstrips issuer supply
- In longer tail classes, frequency
and severity of losses continue to decline and buyers continue to retain more
- Whilst unlikely to
impact retrocession market significantly, Superstorm Sandy slowed any potential downward rate movement. With clients who are
buying additional vertical cover also willing to take higher retentions to maintain the same spend, limits,
retentions and risk-adjusted pricing were flat in general
- The U.K. Motor excess of loss market has
faced very difficult and late renewals with substantial changes to both terms and conditions driven by
loss activity and capacity withdrawal
Commenting on the conclusions of the report, Peter Hearn, Chairman Willis Re said:
“Overall, the global reinsurance
market has maintained a measured and increasingly client-centric approach by providing adequate capacity to buyers, together
with an increasingly differentiated approach at a client- and class-specific level. Final terms and conditions have,
in most cases, been in line with client expectations, as reinsurers largely delivered on the undertakings
they made in the run up to renewal.”
Click here to read the 1.1. renewals 1st View report in full.
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 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 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