1ST VIEW. 1 April 2013

Transcription

1 1ST VIEW 1 April 2013

2 Table of Contents Renewals 1 April 2013 Introduction 3 Property Territory and Comments 4 Rates 5 Pricing Trend Graphs 6 Casualty Territory and Comments 7 Rates 7 Specialties Line of Business and Comments 8 Rates 9 Capital Markets Comments 9 1st View This thrice yearly publication delivers the very first view on current market conditions to our readers. In addition to real-time event Responses, our clients receive our news brief, The Daily Willis ReView, periodic newsletters, white papers and other reports. Willis Re Global resources, local delivery For over 100 years, Willis Re has proudly served its clients, helping them obtain better value solutions and make better reinsurance decisions. As one of the world s premier global reinsurance brokers, with 40 locations worldwide, Willis Re provides local service with the full backing of an integrated global reinsurance broker. Page 2 of 10

3 Capital overflow Sentiment in the global reinsurance market can at times be volatile, no more so than over the last three months. Most reinsurers produced a very strong set of 2012 results, comfortably overcoming the impact of both low interest rates and Superstorm Sandy. Combined with other natural catastrophe losses, this was enough to make 2012 the third worst year for natural catastrophe losses. 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. Just as nearly all reinsurers enjoyed a dramatic recovery after poor 2010 and 2011 results, so have some primary companies, largely driven by underlying rate increases. Even so, there is a gap in performance between reinsurers and primary companies. At the same time, many capital markets are expanding the scope of their activities in alternative investments with a growing emphasis on the universe of insurance event risk. Currently, approximately US$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. Faced with this wave of new capital, traditional reinsurers have begun to recognize the scale of the challenge to their current portfolios that the new capital represents. 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. The advent of new capital is likely to have a significant impact on any post-event response which may occur after a major loss. To date, the traditional model of fresh capital coming into the market has been through the formation of new companies but it is being overtaken by a new model of fast capital flowing in through less permanent structures. For an industry where primary insurance companies value sustainability, this emerging model brings many challenges. Traditional reinsurers have begun to voice concern about access to risk to feed their own growth aspirations. The overall volume of reinsurance premium coming into the global market is being squeezed by a combination of M&A activity and higher retentions by larger insurers, based on revised capital management strategies. Additionally, in the current economic climate, growth in mature markets remains sluggish. It is not being offset by growth in developing economies. Reinsurer growth concerns are also being heightened by both new incoming capital and s in the primary market distribution models across all segments from personal lines to large commercial risks handled by global brokers. Changes in distribution models are, in effect, acting to concentrate premium into fewer larger players hands. Along with strong underwriting results, these factors have led to the significant shift in market sentiment. The 1 April market rate movements have not yet fully reflected the changing market sentiment. Major Japanese buyers are mindful of the support that they obtained from their reinsurers over the difficult renewals of 2011 and 2012, and they have been rewarded with offers of substantial increases in capacity. Treaties that were very challenging to complete 12 months ago are now heavily oversubscribed, with no in the underlying risk / reward dynamic. However, we are seeing early indications for renewals over the next few months which may be a more accurate reflection of market sentiment. The renewal of the Citizens Everglades Re 2013 natural catastrophe bond at a significantly reduced price and Allstate s decision to reduce their traditional placement and increase their use of catastrophe bonds and alternative markets are driving more aggressive pricing. Against this background, the outlook for many reinsurers is challenging with profit margins coming under pressure during In contrast, some primary markets are able to achieve underlying rate increases. This may very well lead to the recent gap in underwriting profitability between primary companies and reinsurers being narrowed. Peter C. Hearn John Cavanagh Chairman, Willis Re CEO, Willis Re 1 April April 2013 Page 3 of 10

4 Property territory and comments India General Insurance Corporation of India (GIC) compulsory cession reduced from 10% to 5% Due to this reduction in compulsory cession and growth in aggregates, many companies are buying more cover Original rates markedly improving Significant risk losses in the market have affected Surplus treaty results and some risk excess of loss Terms and conditions on surplus treaties are stable as many improvements had already occurred at last renewal (event limits, interest abroad limitations) Japan Earthquake There were generally no adverse loss developments from the Tohoku Earthquake that needed to be factored into the renewal and both buyers and reinsurers had a clear understanding of where the loss is likely to settle Plentiful capacity; many existing reinsurers were looking to deploy more capacity than they have in the recent past and this was further helped by the depreciation of the Japanese Yen and the arrival of a few new reinsurers / funds looking to enter Japan for the first time Primary earthquake rates continued to show improved terms and conditions; consequently, earthquake quota share treaties proved popular and most were over placed Earthquake quota share treaties generally renewed with expiring commission terms; there were a few that were able to achieve increased commission terms Earthquake excess of loss generally renewed with modest risk-adjusted reductions There was very little impact from the release of the updated RMS SP4 Natural Catastrophe Model Japan Property It is very difficult to generalize about Property per risk as the results of the proportional fire treaties and risk excesses of loss contracts differ significantly by company There were program restructures and mergers to consider Overseas losses (mainly catastrophe), as well as some large domestic single risk fire losses, have made for a challenging backdrop to renewal Buyers and reinsurers have managed these losses in such a way that the renewal was generally successful for both sides There are a number of examples of renewals that fall outside of the price guidance in the tables, but for renewals without individual circumstances that render year-on-year comparisons difficult, we would suggest that pricing was largely risk-adjusted flat For some of the contracts most heavily affected by losses, rate increases have been mitigated due to the already very high rates on line being paid Japan Wind and Flood Some additional Wind cover bought by clients Supply of capacity exceeded demand A number of reinsurers were looking to deploy more capacity than they have done in the recent past; this was further helped by the depreciation of the Japanese Yen and the arrival of a few new reinsurers / funds Pricing was generally flat, resulting in modest risk-adjusted reductions for buyers Korea Most cedants were affected in some way by both risk and catastrophe losses during Renewal pricing on loss-affected programs varied significantly, depending on the level of loss Due to the in the Korean financial year from 1 April to 1 January, most treaties carried a Cancel & Replace Clause Page 4 of 10

5 On the whole, risk excess of loss, proportional treaties and Casualty excess of loss enjoyed pro-rata premium returns for a short-term cancellation at 31 December, but catastrophe excess of loss varied; due to seasonality, most reinsurers offered only 8% to 10% return of premium in the event of early cancellation Apart from the Cancellation Clauses, most other contractual conditions remained und United States Nationwide Despite the effects of Superstorm Sandy, overall downward pressure on pricing continues Capacity remains healthy, with managed fund vehicles providing new capital to support traditional markets Capital markets are providing more aggressive competition to the traditional reinsurers in both the regional and national account arena With sufficient capacity, pricing variations are being driven by individual company experience, exposure s and perceived attitudes towards long-term relationships versus opportunistic capacity Rates Property rates Territory Pro rata commission Risk loss free % Risk loss hit % Catastrophe loss free % Catastrophe loss hit % India 0% 0% +5% 0% N/A Japan Earthquake 0% to +1% N/A N/A 0% to -2.5% N/A Japan Property 0% 0% 0% to +10% N/A N/A Japan Wind and Flood N/A N/A N/A 0% to -2.5% N/A Korea 0% to -2.5% 0% Varies 0% +10% to +15% United States Nationwide N/A -5% to -10% +10% -5% to -10% +2.5% to +10% Note: Movements are risk-adjusted. Page 5 of 10

6 Property catastrophe pricing trends The charts on these pages display estimated year-to-year Property catastrophe rate movement, using 100 in 1990 as a baseline. Japan United States Page 6 of 10

7 Casualty territory and comments Japan Personal Accident Personal Accident was one of the softer classes of business Capacity was plentiful; few new markets, but most participants happy to offer increases, especially those that entered Japanese Personal Accident following the Tohoku earthquake If exposures were reducing, pricing tended to be risk-adjusted flat For those experiencing exposure growth, however, premiums tended to remain flat, giving the buyers up to 10% risk-adjusted reductions Japan Third Party General Liability Very calm renewal with few structural s and a benign loss environment Over the last few years, a number of Casualty reinsurers with limited involvement in Japan have begun to express interest in the territory A number of new markets showed much greater appetite at this renewal and offered either more meaningful shares or offered capacity for the first time Pricing was risk-adjusted flat Korea Third Party General Liability Capacity remains abundant for all Casualty lines in Korea On average, most cedants obtained risk-adjusted price reductions Placement of Personal Accident quota share treaties remained challenging, despite the general trend of improving results Rates Casualty rates Territory Pro rata commission XL No loss emergence % XL With loss emergence % Japan Personal Accident N/A 0% to -10% N/A Japan Third Party General Liability N/A 0% N/A Korea Third Party General Liability 0% to -1% -1% N/A Note: Movements are risk-adjusted. Page 7 of 10

8 Specialties line of business and comments Aerospace Favorable results for Aviation insurers and reinsurers alike continues to result in downward pressure on rates in both markets No significant new loss activity has materialized, while there has been some improvement in prior year experience Availability of reinsurance capacity remains significant across all segments, including the retrocessional market, with new participants entering the market generating further competition Experience is not dissimilar in the Space market which, despite some loss activity (including the largest loss ever recorded in February 2013), remains profitable over time; consequently, capacity, in both the direct insurance and proportional reinsurance areas in particular, is high Japan Marine Marine hull business in Japan has seen a stable year leading to a neutral renewal in terms of commission levels and capacity remained firm compared to recent years; the same situation has continued with the cargo proportional business, which is also showing stable results Cargo catastrophe excess of loss business has been impacted by the recent major losses, such as Thailand floods and Superstorm Sandy Pricing movements by buyer have been directly related to loss activity making overall market rate movements difficult to estimate Non-Marine Retrocession Plentiful capacity as traditional reinsurers and sidecars reallocate surplus capacity from heavily signed January 1 and the influx of capital markets funds continues Signs of budget constraints for buyers, generally due to high take-up of pillared products (Catco / PURPle) Superstorm Sandy has not impacted retrocession programs, resulting in market softening Capacity providers continue their emphasis on named territories / perils, with little worldwide product in comparison to 2010 and prior Currently reduced activity in the Industry Loss Warranty market as the Industry Linked Securities funds increase their Ultimate Net Loss offering Outlook: as first-tier price competition increases, reinsurers are looking to retrocession for meaningful returns and, in the absence of any major losses, continued downward pressure on pricing throughout 2013 and beyond Page 8 of 10

9 United States Healthcare Medical professional liability reinsurance pricing remains stable Treaty reinsurance capacity is adequate overall and abundant on working layers Reinsurers acknowledge improved frequency trends in establishing loss cost projections, although are paying close attention to any s that may emerge related to health care reform measures Reinsurers are receptive to required increased vertical limit capacity and expanding lines of covered business Reinsurer required underwriting margins are being impacted by reduced investment returns Rates Specialty rates Territory Pro rata commission Risk loss free % Risk loss hit % Catastrophe loss free % Catastrophe loss hit % Aerospace +2.5% to +5% -5% to -10% N/A -5% to -10% N/A Japan Marine 0% N/A N/A 0% to -3% +25% Non-Marine Retrocession N/A N/A N/A -5% N/A Note: Movements are risk-adjusted. Capital Markets New players and new capital for existing players have combined to increase capacity and reduce spreads Catastrophe bond issuance has surged at the end of Q1 with more expected to come in Q2 Minimum coupons (similar to rate on line) have dropped for life and nonlife Indemnity trigger market share continues to rise Sidecar and third party capital initiatives continue to grow even in the absence of a hard market Some investors favor bonds over collateralized reinsurance while others are more indifferent Continuing M&A activity across the board, notwithstanding uncertain economic and political environment Page 9 of 10

10 Global and local reinsurance Willis Re employs reinsurance experts worldwide. Drawing on this highly professional resource, and backed by all the expertise of the wider Willis Group, we offer you every solution you look for in a top tier reinsurance advisor, one that has comprehensive capabilities, with on-the-ground presence and local understanding. Whether your operations are global, national or local, Willis Re can help you make better reinsurance decisions, access worldwide markets, negotiate optimum terms and boost your business performance. How can we help? To find out how we can offer you an extra depth of service combined with extra flexibility, simply contact us. Begin by visiting our website at or calling your local office. Willis Limited Willis Re Inc. The Willis Building One World Financial Center 51 Lime Street 200 Liberty Street London EC3M 7DQ New York, NY Tel: +44 (0) Tel: Media Enquiries Richard Mackillican Communications Director, Willis Re & Faber The Willis Building 51 Lime Street London EC3M 7DQ Tel: +44 (0) Copyright 2013 Willis Limited / Willis Re Inc. All rights reserved: No part of this publication may be reproduced, disseminated, distributed, stored in a retrieval system, transmitted or otherwise transferred in any form or by any means, whether electronic, mechanical, photocopying, recording, or otherwise, without the permission of Willis Limited / Willis Re Inc. Some information contained in this document may be compiled from third party sources and we do not guarantee and are not responsible for the accuracy of such. This document is for general guidance only and is not intended to be relied upon. Any action based on or in connection with anything contained herein should be taken only after obtaining specific advice from independent professional advisors of your choice. The views expressed in this document are not necessarily those of Willis Limited / Willis Re Inc., its parent companies, sister companies, subsidiaries or affiliates (hereinafter Willis ). Willis is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader's application of any of the contents herein to any analysis or other matter, or for any results or conclusions based upon, arising from or in connection with the contents herein, nor do the contents herein guarantee, and should not be construed to guarantee, any particular result or outcome. Willis accepts no responsibility for the content or quality of any third party websites to which we refer. The contents herein are provided for informational purposes only and do not constitute and should not be construed as professional advice. Any and all examples used herein are for illustrative purposes only, are purely hypothetical in nature, and offered merely to describe concepts or ideas. They are not offered as solutions to produce specific results and are not to be relied upon. The reader is cautioned to consult independent professional advisors of his/her choice and formulate independent conclusions and opinions regarding the subject matter discussed herein. Willis is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader's application of any of the contents herein to any analysis or other matter, nor do the contents herein guarantee, and should not be construed to guarantee, any particular result or outcome.