Despite the $30 billion loss impact of Superstorm Sandy, the key battleground for reinsurers is in U.S. property catastrophe, according to a report from Willis Re, a reinsurance risk advisor and broker.

Rates are down as much as 25 percent on some Florida property catastrophe accounts, the company said, with decreases of up to 20 percent nationwide. The report, “Supply Chases Demand,” also found that in the second quarter, losses caused by tornadoes in the United States and floods in Europe will only have a modest impact on the global reinsurance market. “[A]s it stands, it is not easy to see any end to the continuing softening of the global reinsurance market,” the report said.

Indeed, reinsurers are taking robust defensive measures to maintain market positions recently eroded by new capital markets entrants, Willis Re said.

"Traditional reinsurers' defensive actions include offering price reductions, larger line sizes and, in some cases, broadening of cover by offering options such as multi-year agreements, extended hours clauses and additional reinstatements. Capacity for aggregate cover is also more widely available. As most programs are well over-placed, buyers are facing the challenge of signing down reinsurers' shares," said John Cavanagh, Global CEO of Willis Re.

With the modest outlook for growth and improvements in underwriting profitability, many reinsurers are also re-examining their capital management strategies in an effort to improve their overall results. According to the report, offerings from collateralized markets continue to evolve, offering primary buyers increasingly flexible cover and minimizing their basis risk.

"The trend for traditional reinsurers to set up sidecar-type structures, providing third-party capital access to the risk they are accepting, continues to expand. Similarly, the catastrophe bond market continues to grow rapidly and is on track to surpass the previous record high issuance in 2007 of $7.2 billion,” said Peter Hearn, chairman of Willis Re.

”This is proving challenging, the report said, as growth in the largest catastrophe market, the United States, remains modest, as does the take-up rate of capital market solutions in other markets, despite the increasing competitiveness of price as compared to traditional reinsurance products.

The softening in U.S. property catastrophe rates and traditional reinsurers' desire to maintain their market positions is spilling over into other classes. The report finds that casualty markets are seeing substantial increases in capacity across the world and, consequently, prices are softening even though there are concerns about the current low interest rate environment.

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