Willis Re Says Reinsurance Prices Decline on Oversupply

Property and casualty reinsurance prices declined on policies renewed for April 1 amid an oversupply of capital and muted demand from clients, according to Willis Re.

“It’s a pretty difficult situation for reinsurers,” James Vickers, chairman of broker Willis Re’s international reinsurance unit, said in an interview. “The trend seen at the Jan. 1 renewals is continuing with no sign of any let-up.”

The rates reinsurers charge customers are under pressure as low interest rates drive capital market investors, such as pension funds searching for above-average returns, into their market. Below-average catastrophe claims have also left the industry, which shoulders risks for primary insurers in return for a share of the premiums, with abundant funds.

“It remains a buyers’ market, there is too much capacity from all areas,” Vickers said. “I can’t see anything on the horizon that would suggest a change in the trend this year.”

In January, which is typically the most important month to renew annual property and casualty reinsurance treaties, prices declined 11 percent and also fell for most other types of coverage, according to Guy Carpenter, the reinsurance broker of Marsh & McLennan Cos. Prices fell in seven of the last 10 years, according to the Guy Carpenter World Property Catastrophe Rate on Line Index.

George Quinn, chief financial officer of Swiss Re Ltd., the world’s second-biggest reinsurer, said on Feb. 20 it’s “unlikely prices will rebound in 2014.” Munich Re, the world’s largest reinsurer, said last month it expects renewals in April and July to “remain competitive if there are no major loss events.” Hannover Re, the third-biggest reinsurer, shared the view when it reported fourth-quarter earnings on March 11.

“Rates are falling, but where is the floor?” Vickers said. “How much more do they need to go down before capital markets lose interest and supply gets closer to demand again?”

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