Reinsurance pricing and terms continue to soften in manysectors, but other sectors are going through the worst experiencein some time as terms and conditions tighten substantially,according to a recent report on the market.

In its review of the reinsurance marketplace after the July 1reinsurance renewals, Willis Group Holdings' Willis Re divisionsaid it can now assert that what it calls the “Tale of Two Markets”has become even more pronounced.

While there is extensive softening in other areas such asmarine, energy and catastrophe-exposed American and Caribbeanproperty, cedents are experiencing the worst of times, with asubstantial tightening of terms and conditions. Capacity in thesedifficult sectors remains inadequate, compounded by the shortage ofretrocessional reinsurance, thus heralding the first truly hardmarket in over a decade.

Among Willis Re's key findings:

o June-July renewals confirmed earlier signs of an industrywideaccommodation of the factors driving the hard market in marine,energy and U.S. catastrophe-exposed property sectors.

o Substantial catastrophe losses for the past two years haveresulted in insolvencies and significant recapitalization.

o Key industry constituents are re-evaluating the environmentsin which they operate and developing new governing assumptions.

o Rating agencies are employing more conservative andincreasingly stringent parameters to evaluate catastrophemanagement protocols.

o Reinsurers are under pressure to reduce their aggregate anddiversify their writings–rapidly constricting capacity in key zonesand lines of business.

o Capital market alternatives have in reality provedinsufficient to attract investor interest, despite posturingearlier this year that they would solve the capacity crunch in thetraditional reinsurance market.

Peter Hearn, Willis Re's chief executive officer, said in astatement, “Although we do anticipate continued and increasinginfluence from the capital markets and other alternative products,the outlook in the immediate term remains uncertain and highlyvolatile.”

He added, “Another heavy Caribbean-U.S. 2006 storm season, orany other substantial global catastrophe, will have a large bearingon the 2007 reinsurance catastrophe market. It is likely that suchan event will accelerate the re-deployment of capital and make itmuch more difficult to secure traditional reinsuranceprotection.”

The complete report is available at:www.willis.com/news/Publications/WillisReviewJuly2006.pdf.