Over-capacity, soft pricing challenge reinsurers

The outlook remains “challenging” for the rest of the year for reinsurers, according to a report released Thursday by Willis Group Holdings P.L.C.'s Willis Re unit.

Markets continue to face “significant over-capacity and competitive pricing conditions,” said Willis Re in “Reinsurance Market Report: Results for Half-Year 2015.”

The aggregated net written premiums of the reinsurers included in the report for the first half of the year fell by 6.6% to about $117 billion. The report said, however, that the drop was “essentially attributable” to the conversion of euros to U.S. dollars. In fact, Willis said that adjusting for the conversion, it believes that net written premium had “actually modestly increased” in dollar terms at constant exchange rates.

In addition, for those reinsurers within the Willis Reinsurance Index that made the relevant disclosure, the favorable contribution from reserve releases accounted for around $3.1 billion.

“Although an acceleration on previous reporting periods, the most recent commentaries suggest that a tailing off of these releases is more likely in future periods,” according to the report.

The report said that overall, “underwriting margins remain under substantial pressure as evidenced by the ongoing drive toward ever-greater balance sheet scale and product diversification in order to remain competitive and relevant to clients.”

Still, for the time being, reinsurers' earnings “continue to be flattered” by a pair of factors, according to the report. Catastrophe losses have been low, Willis Re noted, while reinsurers also have released reserves.

“The half-year results have increased concerns around the sustainability of reserve releases, partly due to increased incidence of casualty reserve strengthening,” said the report. “Going forward, those who have reserved most conservatively during the soft market will reap the benefits of their approach.”