The state of the global reinsurance market hangs in the balance despite pockets of rate hardening, according to 1 July renewals reports from the big brokers.

In a report titled ‘Mixed Messages’, Willis Re said the reinsurance industry is bracing itself for a possible market turn following the $48bn of catastrophe losses over the past 16 months. However, Willis Re chairman Peter Hearn wrote in the report: “The reinsurance market remains in a state of uncertainty regarding its short-term future direction, but what is clear is that any turn in the market pricing cycle is unlikely to follow historic patterns. More sophisticated capital management techniques and greater transparency over profitable market niches are driving fragmentation of the cycle into territory- and class-specific cycles.”

Similarly, Guy Carpenter’s 1 July renewals report stated that the market is in transition. “While the global catastrophe losses of 2011 and the version 11 release of Risk Management Solutions’ catastrophe model have impacted reinsurers’ view of risk, the longer-term implications remain to be seen,” the company said. “This will come into sharper focus when recent event losses are fully realised and the industry reaches consensus on the integration of the model changes.”

Nevertheless, brokers detect hardening rates in specific areas. Willis Re said US nationwide property catastrophe rates were up by between 5% and 15% in loss free areas and up by between 10% and 20% in loss hit areas.

Rate increases were most marked in New Zealand, where Willis Re reported a 50% increase in catastrophe rates in loss free areas and 150% hike in risk-hit areas. Guy Carpenter said rates in Australia and New Zealand went up by between 20% and 100%.

On the other hand, casualty rates are generally stagnant or declining. Guy Carpenter reported that US casualty pricing continued to decline in the first half of 2011, though at a slower pace than 2010.

Willis found that casualty rates were responding to losses. For example, global professional liability rate changes ranged from a 1% decline to a 1% increase in pro-rata business, were down by between 2% and 5% on excess of loss accounts without losses, but up 5% on accounts with losses.

Bother brokers reported that, despite the heavy 2011 losses, the industry remained well capitalised. However, Willis Re’s Hearn said some in the market believe it is premature to talk about overcapitalisation when the full impacts of Solvency II are not yet known.