* Prices fell by up to 20 pct in April renewals - Willis Re
* They may fall further in mid-year renewals
* Reinsurance price drop may sap insurer price power
FRANKFURT, April 1 A downward slide in
reinsurance prices showed clear signs of accelerating in April
contract renewals and is likely to feed through to property and
casualty insurance prices before long, broker Willis
said on Tuesday.
Reinsurers have seen prices fall by up to 20 percent when
renewing contracts with Japanese insurance companies that take
effect on April 1, with declines likely to be even larger in
U.S. contract renewals later in the year, said James Vickers,
Chairman of Willis Re International.
"Prices are falling pretty much everywhere, driven by too
much supply of capital chasing too little demand," Vickers told
"We don't see anything on the horizon that is going to put a
brake on this at the moment," he added.
Capital market investors such as pension funds, looking to
garner higher returns than they can find on government or
corporate bonds, have been pouring money into the market for
natural catastrophe reinsurance and driving down prices there.
Separately, insurance companies are demanding price cuts on
reinsurance after relatively low payouts for natural
catastrophes last year helped reinsurers post bumper results.
Reinsurers such as Munich Re, Swiss Re
and Hannover Re act as insurance companies to
insurance companies, taking on part of insurers' risks for
storms or earthquakes, for example, in exchange for part of the
"If there are no big losses in the rest of 2014, despite
prices coming down, reinsurers would still do very well,"
Vickers said, adding that this could leave room for reinsurers
to raise dividends or buy back their own shares as they did last
It is not clear how much further prices have to fall. The
industry crunches vast amounts of data on the construction and
value of houses or factories, comparing it with the strength of
possible storms or floods, to set the price for insurance cover.
"The models tell you the potential for a big loss is getting
bigger every year, as people build their houses closer to the
coast, for example," Vickers said.
"The models should be in position to provide some sort of
floor," he added.
In the meantime, insurance companies are benefiting from the
drop in reinsurance prices worldwide, which frees up capital for
other uses, including lowering their own insurance prices to
protect or win market share.
"Inevitably, one or two will use it to reduce their prices
and so others will probably have to follow them down," said
(Reporting by Jonathan Gould; Editing by Pravin Char)