Jason Howard says the reinsurance industry has emerged largely unscathed from the economic turmoil in the global capital markets

The January 2009 renewals could be described in two words: “capital rules”. With equity and debt markets under real liquidity pressure, I would expect to see traditional buyers of reinsurance maximising their use of the product, thus liberating capital for other purposes.

The January renewals show that primary insurers are considering expanding their reinsurance arrangements as they explore buy-downs, aggregate covers and other reinsurance mechanisms to protect and strengthen their capital positions.

Patterns are shifting too in the manner cedants select their reinsurance partners and they are starting to use portfolio diversification to mitigate their counterparty exposure. One immediate impact is an increase in the syndication of risk, which is allowing reinsurers to obtain shares in programmes previously dominated by a limited number of large players.

And judging from the market’s performance in January, reinsurers are meeting the challenge of balancing their portfolio management objectives against the real constraint faced by their insurer customers. The renewals also have shown that the global reinsurance industry has remained substantially unscathed by the unprecedented turmoil in the capital markets.

The capital base is still largely intact and liquid, though somewhat reduced, but it will be difficult and more expensive to access new capital this year. Financial constraints will also mean reduced demand for insurance, which may reduce direct premiums overall.

Jason Howard is CEO Willis Re International.

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