Property reinsurance prices continued to decline in the first half of the year, according to a new brokerage report.
In the first market commentary from a major broker analyzing the July 1 renewal season, the London-based Willis Group Holdings review for the first half of the year noted favorable 2006 results. It also listed continued capital infusion as among the main factors leading to the property sector depression, and increased competition in other lines.
Diversifying reinsurer appetites also contributed to this trend, Willis said.
Willis Re Chief Executive Officer Peter Hearn said the reinsurance industry is undergoing seminal change. "It now includes a variety of constituents such as the capital markets, local governments, residual markets and self-insurance," he said.
The report noted that insurers being squeezed are buying less reinsurance. As a result, there is less premium in the market. "Reinsurers are competing aggressively for the remaining more volatile business," the report said.
July 1 reinsurance pricing, depending on the insurers' specific experience, remained flat or fell significantly in some cases.
Moreover, the capital markets are emerging as increasingly viable competitors to traditional reinsurers.
"Paradoxically, the capital markets that were the allies of the reinsurers after the 2004 and 2005 seasons are emerging as increasingly viable competitors to traditional reinsurers," Mr. Hearn said.
At the moment, the availability of such products continues to offer an alternative to traditional reinsurance. As the market continues to soften, however, insurers will find traditional reinsurance a more economical answer to their risks, he asserted.
In North America, reinsurers contend with price competition, capital market competition, government-sponsored reinsurance vehicles (Florida's Hurricane Catastrophe Fund) and the explosion of residual markets.
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