The broker, part of Willis Group, said that "continued benign loss activity throughout the first half of 2014 has compounded the softening market". Willis Re also observed that buyers were not just "reaping the savings offered by the market"; they were hanging onto those savings, rather than recycling the saved premium back into increased reinsurance purchasing.
Willis Re chief executive John Cavanagh said that "we've seen muted demand throughout 2014, and market dynamics are unlikely to change for some time to come". He noted that, unless there were either major underwriting or major investment losses this year, the rating pressure would continue into 2015.
Willis Re predicted in its report that reinsurers, which were being forced to examine their long-term strategies as there was no end in sight to the excess capacity problem, would be involved in more mergers and acquisitions, more capital restructuring and more sidecar formations with third-party investors.
New bond issuance in the insurance-linked securities market reached $5.7bn during H1 2014, with bonds outstanding now well north of $20bn. However, Willis Re said that "despite this growth, there are some signs that sophisticated investors are starting to flex their investment downwards".
Willis Re Chairman Peter Hearn said: "For primary insurance companies, the ability to recognize primary rate increases while reducing reinsurance cost may be coming to an end". He observed that rate reductions were being seen in most territories on primary insurance classes, "although in many cases the reductions are not directly linked to reinsurance savings."