Historic Reinsurance Cycle Under Extreme Strain and ILS Funds Not Immune From Challenges - Willis Re 1st View
April 01 2015 - 4:00AM
The urgent - and ever increasing - need for change across the
reinsurance industry as it forms a new paradigm is highlighted in
the latest "1st View" renewals report from Willis Re, the
reinsurance division of risk adviser, insurance and reinsurance
broker Willis Group Holdings plc (NYSE:WSH).
The thrice-yearly report highlights that as at April 1, 2015,
the historic market cycle continues to come under extreme strain
and as a consequence, there is now a clear sense of urgency as
reinsurers seek to implement major changes to their strategies and
business models. The need for change is compounded by the growing
transparency of major buyers around their core partner strategies,
and their reluctance to deal with smaller following markets.
M&A activity amongst reinsurers also continues to gather
pace, with three major M&A transactions announced since January
1, 2015. And with the pool of potential partners shrinking,
aspiring consolidators are now increasingly concerned about missing
out on what many observe to be industry change that could last
across generations.
The report also highlights that Insurance-linked securities
(ILS) funds are not immune from the current market challenges, with
reduced returns and the downward pressure on fees placing the
business models of some smaller standalone ILS managers under
duress.
Commenting on this trend, Peter Hearn, Global Chairman,
Willis Re said: "ILS fund managers evolving into more
traditional reinsurer models and reinsurers expanding their own
fund management activities appear best placed to trade through this
difficult period; they can manage investors and access business
more effectively.
"But while this convergence trend is both logical and
anticipated, it is creating a conundrum: as ILS funds evolve their
business models to look more like traditional reinsurers, they are
diluting the differentiation of the very offering which has proved
so attractive to date for major primary buyers."
John Cavanagh, Global CEO of Willis Re, said:
"The April 2015 renewal season has reinforced current trends and
the market continues to favour the buyer. There are no signs that
the current tide of falling rates and widening terms and conditions
will be reversed. Diversification is now the key competitive
advantage in this increasingly consolidated and converged
reinsurance industry, and the ability to deliver a differentiated
service offering is critical. Everyone should be broadening their
horizons."
He concluded, "As investment banks rush to orchestrate the new
model reinsurers of the future, previous views about possible
M&A transactions are being challenged, including any thoughts
that size may be an obstacle. As ever, the key to a successful
transaction is demonstrating that the combination of two entities
is greater than the sum of the two parts. Perversely, this
imperative is likely to increase competition in the short-to-medium
term, which may prolong the current soft market. Analysts are
increasingly concentrating on the portfolio make-up of any
potential new entity – and reinsurance is being seen as less
attractive than specialty insurance business."
Download the report: The Willis Re 1st View
report includes specific commentary on key trends throughout the
world's major reinsurance classes and regions: it is available to
download via the Willis Re website.
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 Reinsurance expertise in a seamless, integrated offering
that can help 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 can help clients
make better reinsurance decisions and negotiate optimum terms. For
more information, visit www.willisre.com.
About Willis
Willis Group Holdings plc is a leading global risk adviser,
insurance and reinsurance broker. With roots dating to 1828, Willis
operates today on every continent with more than 18,000 employees
in over 400 offices. Willis offers its clients superior expertise,
teamwork, innovation and market-leading products and professional
services in risk management and transfer. Our experts rank among
the world's leading authorities on analytics, modeling and
mitigation strategies at the intersection of global commerce and
extreme events. Find more information at our
website,www.willis.com, our leadership journal, Resilience, or our
up-to-the-minute blog on breaking news, WillisWire. Across
geographies, industries and specialisms, Willis provides its local
and multinational clients with resilience for a risky world.
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