Reinsurance rates across most lines of property catastrophe business declined at the Jan. 1, 2010 renewal, according to a briefing by Guy Carpenter & Co. LLC.
Guy Carpenter’s World Catastrophe Rate on Line (ROL) Index declined by 6 percent at the Jan. 1, 2010 renewal, as the reinsurance market recovered and swiftly recapitalized in the wake of the global financial crisis and large reduction in catastrophe losses.
For the United States, reinsurance rates declined from 6 percent to 11 percent on average. Rates in the tornado and hail-prone Midwest proved an exception to the downward trend.
The report, “Rates Retreat as Capital Rebounds: Global Reinsurance Renewals at January 1, 2010,” covers regional developments as well as key influences and trends, such as catastrophe bonds and mergers and acquisitions activity.
Chris Klein, global head of Business Intelligence at Guy Carpenter, said the current reinsurance marketplace is competitive and strong but the environment heading into the new year is not without its challenges.
“A combination of factors – including the rally in global financial markets, relatively low catastrophe losses in 2009 and lingering recessionary effects on demand – has resulted in an excess of supply and heightened competition at this year’s January 1 renewal. As a result, what we saw was an unusually slow renewal, in which a number of contracts did not close until very late in the season, as buyers sought to gain maximum pricing advantage,” Klein said.
“As we move into 2010, it’s safe to say that the property/casualty reinsurance market has weathered the global financial crisis and emerged in a relatively strong position, with abundant capital and ample capacity for most lines of business. At the same time, the environment in which reinsurers operate will continue to be influenced by global economic conditions as much as underwriting decisions, and these macroeconomic factors will continue to warrant close attention.”
U.S. Property Catastrophe
Risk-adjusted catastrophe prices in the U.S. decreased by an average of 6 percent, though the picture is somewhat complicated by recent adjustments to catastrophe models that have decreased predicted losses for earthquake and wind perils. Factoring in modeling adjustments, rates declined by as much as 11 percent on average.
The significant exception to the general downward trend in pricing is programs with significant tornado/hail exposure in the middle of the United States.
Casualty
Rates for U.S. casualty lines were flat to down 10 percent over the past two renewal cycles. Some pockets of resistance existed, with rates for financial institutions professional indemnity, particularly in London, showing single digit increases.
Underlying concerns about increases in loss cost projections, due principally to medical care inflation, have been offset by the wide availability of excess reinsurance capacity.
Underlying insurance rates for product liability are largely unchanged, but the effect of the recession has reduced turnover in most sectors except pharmaceuticals and medical devices, which in turn impacted reinsurance revenues on the main commercial/industrial liability placements.
Aviation and Marine
Rate changes for aviation risks were essentially flat. Increases were largely dependent on size of loss, exposure changes and overall program premium banks.
Some aviation sectors (such as commercial helicopters) faced increases following a spate of losses, while others (such as good quality corporate aircraft risks) continued to see reductions.
Marine rates were down by an average of 5 percent. Capacity is growing and ample, with widespread price-cutting, particularly for non-Gulf of Mexico business. Absent any significant losses, downward pressure on marine rates is expected to continue into 2010.
Other Key Trends
Eighteen new catastrophe bond issues came to market in 2009, easily exceeding the 10 issues reported in 2008. The cat bond market will continue to provide an increasingly attractive and worthwhile supplement to sponsors’ risk transfer programs in 2010.
Mergers and acquisition activity – both tactical and strategic – regained some momentum in 2009.
Guy Carpenter is a reinsurance specialist and a part of the Marsh & McLennan Cos. Both the report and downloadable charts are available at www.gccapitalideas.com.
Topics Trends Catastrophe USA Pricing Trends Aviation Reinsurance Property
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