Reinsurers start speculating about a market turn: Willis Re

Reinsurers are increasingly speculating about triggers for a market turn after an “exceptional” run of natural catastrophes over the past 16 months has cost reinsurers approximately US $48 billion and insurers US $86 billion, says Willis Re, the reinsurance arm of global insurance broker Willis Group Holdings (NYSE: WSH). Offsetting the reinsurance losses, during the first half of 2011, share buy backs were scaled down and $1.2 billion of new capital entered the industry through side cars and fresh equity, Willis Re reports. The moves indicate some reinsurers were starting to position themselves for possible reinsurance rate hikes. A Willis report for June/July 2011, Mixed Messages, estimates a string of natural catastrophes in 2011 Q1 has cost reinsurers in the region of 10% of their total shareholders’ funds at the end of December 2010.And while the report does not suggest a hard market is imminent, certainly reinsurers are starting to discuss possible tipping points. “Given all the variations in loss experience, model change, exposure change, structure change, capacity demand and geographical scope, it is not easy to generalize about rate changes,” says Willis Re chairman Peter Hearn, who wrote the forward to the report. “The reinsurance market as a whole has reacted reasonably logically with a differentiated approach driven on a case-by-case basis.”Responding to rising speculation in reinsurance circles about what it will take to drive a harder market, Willis Re says any event resulting in a further reduction of market capitalization will be the key to a market turn. The report offers some of the most likely triggers, including a major natural catastrophe or potentially a more damaging series of medium-sized catastrophes. In addition, a financial downturn or contagion arising from European debt issues could be enough to turn the market.The full report is available at:http://www.willisre.com/documents/Media_Room/Publication/WillisRe1stViewJuly2011.pdf