More rating pressure to come: Willis Re

UK: The reinsurance sector is seeing significant rate reductions as the excess capital supply in the market continues to chase muted demand, according to the 1st View Renewals Report from Willis Re. Continued benign loss activity throughout the first half of 2014 has compounded the softening market. Inflows from capital markets have continued to add to the excess supply of capital, although much of the competition has also been driven by the traditional reinsurance markets.

John Cavanagh, CEO of Willis Re, commented: “The tentacles of the softening market are spreading far and wide, with no immediate signs of relief. We’ve seen muted demand throughout 2014 and market dynamics are unlikely to change for some time to come. The current market position is increasingly challenging for reinsurers. Below average loss ratios in the first half of 2014 and reasonably adequate reserving positions mean that, barring any major underwriting or investment losses in the coming months, we will see another year of reasonable returns. This places further pressure on rating levels for 2015.” As major ratings agencies have moved their outlook on the global reinsurance sector to negative in recent months, they have focused on the role of the insurance-linked securities (ILS) markets in driving down pricing in the high margin US catastrophe market, which has produced the lion’s share of reinsurers’ overall returns in recent years. Additionally, the emergence of ILS capacity in other non-catastrophe lines of business has been highlighted by ratings agencies as an area of concern.