LONDON, Jan 2 (Reuters) - Reinsurers could be hit with up to a 25 percent decline in premium revenue over the next 12 months after the number of natural and man-made disasters dropped by half in 2013, a study by reinsurance broker Willis Re said.
As well as the relative lack of costly catastrophes, the market remained hampered by oversupply as pension funds and hedge funds increasingly look to offer reinsurance for insurers looking to reduce their potential claims exposure.
"The key influence on the Jan. 1 renewals has been overcapacity triggered by a number of converging factors," Willis Re CEO John Cavanagh said, citing strong results from reinsurers and the increase in capital from non-traditional sources, which he said totalled $50 billion.
That trend was compounded by muted demand from buyers as a result of regulatory changes and as leading insurance groups looked to keep more risk on their own books.
"A heady cocktail of converging factors has fuelled a soft buyers' market in nearly all lines of business," Willis Re said in its 1st View Renewals Report.
The biggest hit, of between 10 percent and 25 percent, would be to U.S. property catastrophe reinsurance after a relatively benign hurricane season," it said. European premiums, meanwhile, could fall by between 10 percent and 15 percent.
Hannover Re last week said it expected premiums to fall in 2014, fuelling concern about a possible price war with peers Swiss Re, Munich Re and Berkshire Hathaway to protect market share.
In response, some reinsurers have been looking to offer more complex deals, branching out into speciality areas of the market or offering underwriting services to the alternative investors, Willis Re Chairman Peter Hearn said.
Faced with the challenge of increasing revenues in such an environment, a number of firms are expected to take a fresh look at mergers and acquisitions, Willis Re added.
- Willis Re