Research shows disparity between re rates and primary insurance pricing
There is a disparity between reinsurance and primary pricing levels despite the continuing soft reinsurance market, according to the annual renewals report released by Willis Re, titled “Whose Cycle is it Anyway?”
While reinsurance price reductions have provided relief for many cedants, these gains may quickly reverse in what is a deceptively tenuous environment, the report noted.
The report focuses on rate movements across numerous territories and includes detailed analysis from Willis Re’s product line experts. Key findings of the report include:
• Reinsurers may need to implement more transient capital structures and take on additional leverage if post-loss funding becomes less attractive to capital markets.
• Potential subprime “shock losses” and falling rates / pricing present greater parameter risk – taken together, these may cause edginess about reserve adequacy.
• With the brunt of the Atlantic hurricane season yet to arrive, the potential for further / sizeable losses looms and reinsurer 2008 profits are anything but assured.
• Some investors have shifted their focus from the ILS sector to opportunities in the credit markets that are perceived to be more attractive.
• As the market increasingly understands the benefits and advantages of ILS products, a less cyclical outcome is probable.
Peter Hearn, CEO of Willis Re, said: “Our industry faces many traditional risks, but it is the ‘tail’ events like 9/11, Katrina and the subprime crisis that drive change in the intertwined global reinsurance marketplace. Current pricing trends, however, seem to indicate that the market is giving little weight to the potential for extreme events. We hope that this report will give our clients a good overview of the market this renewal season and we will work together to proactively address the full scope of their risk profiles going forward in 2008.”