Challenging year ahead

International

Reinsurers will face a tougher time this year than they did last year, according to the annual reinsurance renewals report released by broker Willis. In addition to softening premium rates over a wide range of classes and territories as more capacity floods into the market after the sector enjoyed two highly profitable years in 2006 and 2007, reinsurers have also experienced a marked increase in the number of large facultative losses as well as an increased frequency of attritional catastrophe losses during the first quarter of 2008. Willis warns that this may be an omen of things to come when the Atlantic storm season begins in a few months time. Although the industry is strongly capitalised, the current crisis in the financial markets suggests that significant support is enjoyed from investment income and reserve releases are likely to fall away. Many companies, looking to adjust their capital position in line with a falling market, are returning capital to shareholders. But despite these efforts, capacity remains abundant. Willis cites the example of the disappointment expressed by some of the larger Lloyd’s syndicates when the Lloyd’s market did not reduce its capacity for 2008 more substantially. Interestingly, the Willis report suggests that price reductions were much more evident in smaller markets.