Urgency and diversity of change across reinsurance industry likely to increase in the short-to-medium term: Willis Re

While the first quarter of 2015 has clearly demonstrated the urgency and diversity of change across the reinsurance industry, this can only increase in the short-to-medium term as the global reinsurance market evolves, suggested a new report from Willis Re.

There is a clear sense of urgency as reinsurers seek to implement major changes, the report said

In its thrice yearly 1st View publication, Change fast forwards, Willis Re noted that the April 1 renewal season has reinforced current trends and that the market continues to favour the buyer. “There are no signs the tide of falling rates and widening terms and conditions will be reversed,” said the report, released last week. “Faced with this reality – that the historic market cycle continues to come under extreme strain – there is a clear sense of urgency as reinsurers seek to implement major changes in their strategies and business models.”

Related: No respite for reinsurers at Jan. 1 renewals, M&A activity now reality: Willis

Noting that the mergers and acquisitions “starting gun was fired 12 ago,” the report said that “analysts are increasingly concentrating on the portfolio make-up of any potential new entity – and reinsurance is being seen as less attractive than specialty insurance business.”

From a property standpoint, nationwide the United States is seeing:

• Continued abundance capacity driving competition in terms of both pricing and conditions;

• Some cedants investigating buying more catastrophe coverage while pricing remains attractive;

• Most national accounts now having diversified panels of security from all sectors, including collateralized reinsurers, sidecars / managed fund and other non-traditional vehicles, besides traditional reinsurers; and

• Non-standard insurance products, including aggregate protection and shared limit covers, becoming much more widely accepted.

The report also noted that there is “no sign of directional change within the aviation segment; oversupply of capacity and consequent demand for business continue to drive direction of pricing.” Reinsurance capacity remains abundant and buyers are continuing to benefit from competitive pricing, although this has been in the context of a continually weakening underlying market, the report says, with aviation retrocession pricing coming under pressure with new participants providing additional capacity and reductions in pricing.

Adding to the sense of urgency is “growing transparency from major buyers around their core partner strategies and their reluctance to deal with smaller following markets,” the report concluded.