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Reinsurers, insurance-linked securities not immune from market challenges

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April reinsurance renewals showed continued downward pricing pressure and laid bare the similar challenges now being faced by the insurance-linked securities sector, Willis Group Holdings P.L.C. said in a statement Wednesday.

In its latest “1st view” renewals report, which are published three times a year by Willis Re, the reinsurance unit of parent Willis Group Holdings, the company said reinsurance was a buyer's market and shows no indication of reversing declines.

“The 1st April 2015 renewal season has reinforced current trends, and the market continues to favor the buyer. There are no signs the tide of falling rates and widening terms and conditions will be reversed.

The report noted that pressures extended to the insurance-linked securities sector.

“ILS funds are not immune from the current market challenges. Reduced returns and the downward pressure on fees are placing the business models of some smaller standalone ILS managers under duress,” the report said.

In the U.S. property market, continued abundant capacity is driving competition in terms of both pricing and conditions, said Willis Re, while some buyers seek to take advantage of the market, which declined 10%-15% for non-loss accounts.

“Some cedents are investigating buying more catastrophe coverage while pricing remains attractive,” said the Willis Re report.

In addition to challenges in the capital markets space, the report noted increases in merger and acquisition activity among reinsurers and suggested that it would continue to be a focus of the Bermuda companies

“Bermuda focused (re)insurers continue to look for M&A opportunities to increase scale; the increased activity could eventually rationalize capital and create additional market opportunities,” said the report.