Reinsurance industry largely unscathed by financial crisis, report finds
The reinsurance industry has remained substantially unscathed by the recent turmoil in the global financial markets, according to a report.
Willis Re, the reinsurance broking arm of Willis Group Holdings, issued the study, which found that despite the economic downturn, a capital base is still largely intact and liquid. However, the report concluded that access to new capital in 2009 will become more difficult and expensive in the current climate.
"The unprecedented turmoil in global capital markets during the second half of 2008 has ravaged the balance sheets of many financial institutions," said Peter C. Hearn, CEO of Willis Re. "Reinsurers, while not currently impaired, have recognized that in the current financial market climate, obtaining new post-event capital will be both difficult and expensive. As a result, reinsurers are seeking to optimize returns on existing capital bases via constrained risk appetites and elevated risk charges."
Among the other key findings of the report, researchers found that:
- Primary insurance companies, facing new capital pressures, are increasing their demand for reinsurance as they explore buy-downs and other mechanisms to protect and enhance their capital positions.
- The manner by which cedants select reinsurance partners is shifting. With third-party credit ratings no longer sacrosanct, cedants are reassessing credit risks and are seeking to use portfolio diversification to mitigate their counterparty exposure.
- Reinsurers are meeting the challenge of balancing their portfolio management objectives against the real economic constraints faced by their insurer customers by offering appropriate product, price and capacity.
January 29, 2009
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