By Jonathan Kent

A spike in demand for reinsurance in Florida is helping parts of the property-catastrophe reinsurance market to stabilise, according to broker Willis Re.

The view, expressed by Willis Re Global chief executive officer John Cavanagh, comes as reinsurers are wrapping up one of the key periods on their calendar, the June 1 and July 1 renewals, which include much North American hurricane coverage.

Prices for catastrophe reinsurance have been pressured in recent years by increasing competition for traditional reinsurers from third-party capital in the form of collateralised reinsurance and insurance-linked securities like catastrophe bonds, combined with a period of relatively light catastrophe claims.

But Willis is seeing signs that even the third-party capital is pulling back from some business in the soft market.

“Despite pricing remaining under intense competition in non-peak areas where traditional reinsurers still dominate, after a relentless period of rate reductions, early signs of pricing stabilisation are starting to emerge in peak property catastrophe zones,” Mr Cavanagh wrote.

“The swell in capacity from collateralised reinsurance markets, which has recently played a major role in driving pricing in the peak zones, appears to have abated.

“A number of these markets have shown pricing discipline by cutting the capacity they are prepared to offer as the market has continued to soften.”

Mr Cavanagh added that “the notable increase in demand for Floridian catastrophe capacity” had also been a factor in the stabilisation in the peak property-catastrophe zone market.

“With the North Atlantic hurricane season now under way, the June 1 and July 1 2015 renewal season offers reinsurers some hope that even if the predicted low level of hurricane activity is realised, the outlook for 2016 might not be quite as bleak as may have been inferred from the recent January and April 2015 renewals,” the report adds.

Mr Cavanagh added that reinsurers’ market values had held up better than the outlook for the business might imply. The reason for this was the merger and acquisition “frenzy” that he said continued to heat up. He added that some of the combinations were creating uncertainty among the insurers who buy reinsurance to transfer some of their risk.

“Some of this activity is throwing up unexpected combinations, making it difficult for reinsurance buyers to judge the value to them over the medium-to-longer-term of some of the potential merged entities,” Mr Cavanagh said.

“It is important for those driving M&A deals to articulate a clear message about the value they can deliver to their clients, as opposed to the current focus on the value to each company’s own shareholders and management.”