Excess Capital Supply Continues to Chase Muted Demand in Reinsurance Market

LONDON, July 1, 2014 (GLOBE NEWSWIRE) -- The reinsurance sector is seeing significant rate reductions as the excess capital supply in the market continues to chase muted demand, according to the 1st View Renewals Report from Willis Re, the reinsurance division of the risk adviser, insurance and reinsurance broker Willis Group Holdings plc (NYSE:WSH).

Continued benign loss activity throughout the first half of 2014 has compounded the softening market. Inflows from capital markets have continued to add to the excess supply of capital, although much of the competition has also been driven by the traditional reinsurance markets. Continuing the trends seen at reinsurance renewal points in January and in April, buyers are reaping the savings offered by the market and are not generally seeking to recycle the saved premium spend back in to increased reinsurance purchase.

John Cavanagh, CEO of Willis Re, commented:

"The tentacles of the softening market are spreading far and wide, with no immediate signs of relief. We've seen muted demand throughout 2014 and market dynamics are unlikely to change for some time to come. The current market position is increasingly challenging for reinsurers. Below average loss ratios in the first half of 2014 and reasonably adequate reserving positions mean that, barring any major underwriting or investment losses in the coming months, we will see another year of reasonable returns. This places further pressure on rating levels for 2015."

Buyers' tiering of their reinsurance capacity suppliers, in traditional, collateralized and ILS markets, is adding to competitive pressure. Reinsurers and fund managers trading through this challenging period are therefore being forced to examine their strategies carefully. Against this backdrop, the report notes that this could lead to more M&A, capital restructuring and formations of sidecars with ILS investors.

As major ratings agencies have moved their outlook on the global reinsurance sector to negative in recent months, they have focused on the role of the insurance-linked securities (ILS) markets in driving down pricing in the high margin US catastrophe market, which has produced the lion's share of reinsurers' overall returns in recent years. Additionally, the emergence of ILS capacity in other non-catastrophe lines of business has been highlighted by ratings agencies as an area of concern.

Addressing the emergence of ILS capacity, the report highlights the continued growth of the catastrophe bond market. New bond issuance has reached USD 5.7 billion to date in 2014, with the total outstanding amount reaching an all-time high of USD 21 billion. Despite this growth, there are some signs that sophisticated investors are starting to flex their investment downwards. The report concludes that this style of logical, considered investment bodes well for the long term sustainability of ILS capital and should help address some of the persistent market concerns about the long term commitment of ILS investors.

Peter Hearn, Chairman of Willis Re, concluded:

"For primary insurance companies, the ability to recognize primary rate increases while reducing reinsurance cost may be coming to an end. Rate reductions are being seen in most territories on primary insurance classes, although in many cases the reductions are not directly linked to reinsurance savings."

The report, which is available to download via the Willis Re website, includes detailed commentary on trends in the world's major reinsurance classes and markets.

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 can help 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 can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit www.willisre.com.

About Willis

Willis Group Holdings plc is a leading global risk adviser, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world's leading authorities on analytics, modeling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website,www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.

CONTACT: Media: Juliet Massey + 44 20 3124 7452 juliet.massey@willis.com Investors: Peter Poillon + 1 212 915 8084 Peter.Poillon@willis.comSource:Willis Group Holdings