Willis Re: Tohoku Won’t Turn the Soft Market Tide

Robust Reinsurers Pick up Catastrophe Tab of US $35-$42 Billion in last 13 Months, but Have Exhausted Their 2011 Catastrophe Loss Budgets

LONDON--(BUSINESS WIRE)-- Relatively orderly price movements at the<chron>April 1 Japanese reinsurance renewals reveal that the Tohoku Earthquake is not the catalyst that will bring about a hard market. However, according to Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH), the total tally of first quarter devastation including the Japan, Chile and New Zealand earthquakes and the Australian floods, have significantly accelerated the likelihood of a market-wide turn should reinsurers be tested again this year.

Titled "Shaken and Stirring," the Willis Re 1st View Renewals Report found that while there have been rate increases on Natural Catastrophe Excess of Loss of between 5 and 50 percent, the Tohoku and Christchurch earthquakes are not by themselves sufficient to drive up market-wide pricing. But, according to the reinsurance broker, to trigger a hard market there needs to be an additional accelerant which could be another major natural catastrophe loss, inflation, the reversal of back-year reserve releases or wider financial issues impacting investment income and balance sheet strength.

Willis Re noted that of the total 2010 catastrophe losses – approximately US $60 billion of insured losses to the global insurance industry in a 13 month period to March 2011– it is currently estimated that between US $35 to $42 billion has been passed from primary insurers to reinsurers.

Reinsurers have been able to absorb these large losses due to their robust capital position – a product of excellent underwriting results in 2009 and strong investment performances for both 2009 and 2010. But Willis Re warned that while reinsurers’ financial strength may be largely unimpaired, their financial flexibility could be impacted resulting in less M&A and reduced share buy backs and other excess capital management techniques.

The Willis Re report found that the most immediate challenge for many reinsurers is that the losses suffered to date in 2011 have largely exhausted their annual catastrophe loss budgets. In response, reinsurers are trying to proactively manage their underwriting results for the remainder of 2011 by applying rate increases in areas of natural catastrophe loss activity and tightly controlling their capacity deployment.

Commenting on the findings of the report, Peter Hearn, Chairman, Willis Re, said, “While the financial strength of the reinsurance industry remains remarkably intact in the wake of Tohoku, it can only withstand so many blows. The reinsurance industry is on the cusp of change and a hard market may be only one more major event away. It could be something as dramatic as a catastrophic hurricane during the upcoming North Atlantic and European winter windstorm seasons or something more systemic like creeping inflation, but whatever the cause, reinsurers have proven their resilience and are gearing up for a bumpy ride over the remaining months of 2011.”

Click here to access the full Willis Re 1^st View Renewals Report.

About Willis Re

One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Capital Markets and Reinsurance expertise in a seamless, integrated offering that helps clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that help clients make better reinsurance decisions, access worldwide capital markets and negotiate optimum terms. For more information, visit www.WillisRe.com.

About Willis

Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.

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Source: Willis Re