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    Willis Re: Talk of a Hard Market Evaporates With Measured Softening at January Reinsurance Renewals

    Broker's Quarterly Renewals Report Shows a Recovery in the Catastrophe Bond Market and Predicts a Pick-up in M&A Activity in 2010

    London, UK, December 31, 2009 - Strong reinsurance underwriting profits, a recovery in the global investment markets and a lack of premium growth for primary underwriters have resulted in a disciplined softening of reinsurance pricing in the January 1, 2010 renewal season. This assessment of the state of the marketplace comes from the latest renewals report from Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH), the global insurance broker.

    "Orderly Softening" is the title of the new edition of Willis Re's "1st View," which is published three times each year examining reinsurance rate movements across numerous territories and product classes. Willis Re's "1st View" also includes detailed analysis from Willis Re's product line experts.

    The just-released edition of the report found that reinsurers have generally maintained a responsible underwriting attitude towards their own capital suppliers, as well as giving some recognition to their clients' requests over the January 1 renewal season. This disciplined rating approach, says Willis Re, reflects reinsurers' concern that the excellent 2009 underwriting results are less due to attractive pricing than a below average pattern of natural catastrophe and man-made losses.

    Peter Hearn, CEO Willis Re said, "Despite global economic headwinds, the reinsurance industry has enjoyed one of its most profitable underwriting years for a number of years. This is due to the recovery on the asset side of reinsurers' balance sheets in line with the strong performance of global markets in 2009. The position, however, is worse for reinsurers' clients, where stagnant premium growth is pressuring expense ratios, particularly in mature markets. Reinsurers have listened to these concerns and responded sensibly with measured premium reductions."

    Among the other key findings of the report are:

    • Rate reductions have been easier to achieve on growing portfolios where reinsurers have been more flexible about accepting increased exposures for a similar premium volume. Conversely, on stable and reducing portfolios where buyers have been seeking reductions in pure monetary premium amounts,reinsurers have shown less flexibility to maintain their own premium volume.
    • The main area of pricing inadequacy for most reinsurers remains long-tail classes, especially in the US. Despite many calls for a market hardening, no turn has emerged in the US market at the January 1, 2010 renewals, other than in financial lines.
    • The catastrophe bond market is recovering, helped by a convergence in pricing between traditional reinsurance structures and catastrophe bonds, coupled with the recovery in global investment markets. The total placed limits for catastrophe bonds in 2009 in aggregate is US$ 3.4 billion, a little larger than the 2008 figure of US$ 2.73 billion.
    • With the background of a continued softening, together with replenished capital bases, the Mergers & Acquisitions and capital management trend which emerged in the second half of 2009 will likely accelerate during the first half of 2010, says Willis Re.

    Hearn concluded, "When many other financial markets were in turmoil over the past year, the reinsurance industry managed to meet its client requirements in virtually every case. The disciplined actions taken by reinsurers at the January 1 renewals reinforce the fact that the market will continue to provide clients with secure long-term support in the years to come."

    Willis Group Holdings Limited 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 20,000 Associates serving clients in some 190 countries. Additional information on Willis may be found at www.willis.com.

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    Note to Editors: To read the full Willis Re 1st View Renewals Report for January 2010, please click here.

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