LONDON, Jan. 2, 2015 (GLOBE NEWSWIRE) -- Relentless rate reductions, low investment returns and the continued influx of alternative capital have offered no respite for reinsurers at the January 1, 2015 renewal season with a reshaping of the global reinsurance industry now starting in earnest, according to the latest 1st View renewals report from Willis Re, the reinsurance division of risk adviser, insurance and reinsurance broker Willis Group Holdings plc (NYSE:WSH).
As expected, downward pressure on reinsurance rates continued across nearly all lines and geographies along with improved terms and conditions, with abundant oversupply of capital continuing to outstrip demand following yet another year of benign loss activity. Tiering of reinsurers is also gaining wider traction, putting real pressure on smaller reinsurers and mono line catastrophe writers who have the additional burden of competing with the capital efficient and highly competitive capital market-backed funds and sidecars.
Against this backdrop, the report states that long-rumoured M&A activity is now reality, with some companies recognising that any further delay is only likely to see further deterioration in their valuations. With only a limited supply of attractive target companies, consolidators looking for scale and diversification are moving as company valuations become more reasonable for both parties.
Peter Hearn, Chairman, Willis Re, said: "In the current environment, many reinsurers recognise they can no longer hope for salvation through major market losses or increasing interest rates. Their only sustainable course of action is to change their business models, portfolio mixes and to strive for scale. The new mantra is diversification. Whether this is by class or geography - preferably both - reinsurers are being actively rewarded by investors and buyers who see diversification as key to sustainability, along with size."
However, according to the report, not all reinsurers are accepting wider terms and conditions in addition to reduced rates, and a number of buyers have given firm order prices above the best market terms to maintain their relationships with key partners. Some reinsurers are also actively scaling back their portfolios and going into 2015 with reduced budgets - particularly within the natural catastrophe sphere - helping to resist overly aggressive pricing and terms and conditions. The anticipated influx of hedge fund-backed reinsurers also appears to have abated. However, the report suggests that this is more closely related to rating agency hurdles than to current market conditions.
Looking to 2015, John Cavanagh, CEO, Willis Re, concluded: "Yet again, buyers have held sway. Also adding to reinsurer woes are the predictions that the global reinsurance market is only just managing to cover its cost of capital in 2014 and may fail to do so in 2015. Arguably, the continued lack of demand and oversupply of capital can only keep driving pricing down: unlike other financial markets, the reinsurance market lacks inherent depth, with no structured secondary trading market to help absorb the excess capacity. As a sector, we need to create depth."
Download the report: The Willis Re 1st View report includes specific commentary on key trends throughout the world's major reinsurance classes and regions: it is available to download via the Willis Re website.
About Willis Re
One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit www.willisre.com.
About Willis
Willis Group Holdings plc is a leading global risk adviser, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world's leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website, www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.