Reinsurance prices decline by up to 25pc as demand remains subdued

Reinsurance prices fell by as much as 25 per cent in key markets mid-year as pension funds poured in money and demand for cover from insurance companies remained subdued, brokers said.

Reinsurers had been negotiating with insurance company clients in the United States, Australia and Latin America to set the terms and prices for shouldering big risks like hurricane and earthquake damage in contracts that took effect from July 1.

The reinsurance industry, whose biggest players are Munich Re, Swiss Re and Hannover Re, was unable to halt a decline in its pricing power, dubbed a "soft" market in industry parlance.

"The tentacles of the softening market are spreading far and wide, with no immediate signs of relief," said John Cavanagh, chief executive of broker Willis Re.

Willis said property catastrophe reinsurance prices fell by as much as 25 per cent in hurricane-prone Florida and were down by a fifth across the US. The industry's weak pricing power was one reason credit rating agency Moody's changed its outlook on the reinsurance sector to negative from stable last month.

The global slump in interest rates since the financial crisis has made it hard for reinsurers to earn a good return from investments. It has also tempted pension funds, institutional investors and high net-worth individuals to invest in capital market products that compete with traditional reinsurance, such as catastrophe bonds. Total catastrophe bond issuance in the first half of this year was 50 per cent higher than for the same period last year, said Bryon Ehrhart, chief executive of Aon Benfield Americas.