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The Actuary The magazine of the Institute & Faculty of Actuaries

Reinsurance rate rises ‘due to losses, not hardening market’

Reinsurance rate increases in the North American and global markets are a sign of loss activity rather than hardening markets, Willis Re said yesterday.


In Looks can be deceiving, the reinsurance firm said that despite headline figures forecasting rate increases, there was still plentiful capacity in the reinsurance market. Reinsurers have taken a targeted approach to underwriting in a bid to manage and, in some cases, de-risk their portfolios.

But Willis Re said this did not indicate a generalised market hardening, which would mean premiums increase and reinsurers become more selective in the business they take on. This was to the ‘frustration’ of some reinsurers, it said.

Peter Hearn, chair of Willis Re, said: ‘The reinsurance market is stable and orderly, but the reality is that it is not hardening. In fact, some buyers with loss-free programmes, even in areas of peak exposure, have managed to obtain risk-adjusted rate reductions at the June 1 and July 1 renewals.’

According to the report, most reinsurers’ satisfactory investment returns in 2011 were derived from capital gains arising from falling interest rates. There are concerns, however, that a rise in interest rates and resulting fall in the value of bond portfolios could result in potential investment losses for reinsurers.

Mr Hearn said that it was the impact of external factors such as this that could eventually result in a hardening market.

‘Curiously, despite the fact this scenario is well known and widely discussed in industry circles, pricing on longer rail classes remains soft despite these warning signs to reinsurers’ balance sheets,’ he said.

‘The eventual increase in interest rates, coupled with an increase in inflation, could potentially trigger a hard market ahead of significant loss events.’

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