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In the first half of 2007, reinsurers duked it out among themselves while demand for their product dropped, according to the July 1 reinsurance renewal review from Willis Re.

"Primary companies are taking a close and clear look at their reinsurance purchases," said Paddy Jago, CEO, Willis Re U.S. "Whereas perhaps 12, 18 months ago, they did not feel they could afford to take increased net retentions, they now feel, often as a consequence of the benign 2006 hurricane season, that their financial predicament is such that they are comfortable in retaining more risk net, especially at the lower end of their programs."

Competition in the reinsurance market is not limited to reinsurers. "Not only do you have the traditional reinsurance market showing an appetite to increase its capacity, but we also have the capital market arena entering what has hitherto been the traditional market's playground," said Jago.

Increased activity from the capital markets will increase capacity available to insurers to transfer their risk. But Jago said the capital markets have yet to prove any long-term commitment.

"Previously, capital markets have entered, but maybe put a toe in the water," he said. "I think the question with the capital markets is not their appetite now, which is clear and evident, it is their appetite over a consistent period of time."

Other noteworthy items in the July 1 report include a rejuvenated retrocessional market, which had nearly dried up completely through 2006; healthy renewals in Florida despite the state's legislative changes; and skyrocketing exposures in the residual markets.

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September 1, 2007

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