Reinsurers continue to be pressured by alternative capital entering the marketplace, but Willis Re says in a new report that mutual insurers can leverage this dynamic to strengthen relationships with traditional reinsurers.
In its “1st View April 2013 Renewals Report,” Willis Re says that “changing distribution models coupled with a flood of alternative capital has left many reinsurers concerned over both their existing portfolios and their access to future growth.”
Robin Swindell, executive vice president of Willis Re, says in a statement accompanying the report that mutual insurers can use this new reality to their advantage. “Traditional reinsurers are very aware that while some larger commercial buyers are reducing their use of reinsurance in this phase of the reinsurance cycle, mutual buyers value long-term sustainable relationships throughout the entire cycle. This is the perfect time for mutuals to demonstrate that they are reinsurers’ preferred customers.”
Willis Re notes that, for mutual insurers, policyholders, not external shareholders, are the ultimate owners. “This means they have less access to other forms of capital, and as a result, mutual insurers are often heavily reliant on reinsurance to provide them with additional capital to deal with catastrophes and large losses.”
John Haydon, executive vice president of Willis Re, says, “Mutual insurers are in business for their members for the long-term and should receive the recognition they deserve from reinsurers.
Outlining the challenges reinsurers face with respect to capital markets expanding the scope of their activities in insurance-event risk, Willis Re says, “Currently, approximately $35 billion of capital is flowing into the global reinsurance market through a variety of sources. Further, there is a clear acceleration in the volume of fresh capital seeking appropriate opportunities.”
Reinsurers are adapting to respond to the new challenge. “While some reinsurers are considering how to respond, others are developing third party capital management propositions to offer their own skills and platforms as fund managers.”
Overall, Willis Re says most reinsurers produced strong results in 2012, “comfortably overcoming the impact of both low interest rates and Superstorm Sandy.”
The broker adds, “Any lingering concerns over Superstorm Sandy at the end of 2012 have been rapidly forgotten and many reinsurers have used their good results to support a variety of capital management actions while maintaining capital strength.”
For U.S. property reinsurance, Willis Re says overall downward pressure on pricing is continuing, while capacity remains healthy. “With sufficient capacity, pricing variations are being driven by individual company experience, exposure changes and perceived attitudes towards long-term relationships versus opportunistic capacity,” Willis Re says.