Midway through the year and the reinsurance business appears to be running smoothly, according to broker reports. Willis Re says that there was sufficient capacity in virtually all areas and a ‘reasonably orderly’ rating environment at the July 1 reinsurance renewals.

Greater stability in the reinsurance market produced by signs of recovery in the financial markets, coupled with a lack of big underwriting losses in the first two quarters of 2009, compensated for reinsurers’ losses over the preceding 12 months.

In the property-intensive mid-year renewals, rate increases were moderate reflecting a lack of meaningful rate hardening in the primary market, Willis Re said. It pointed out that many primary insurers continue to face soft pricing, weaker demand and reduced investment yields while their prior-year reserve releases have largely run out.

Aon Benfield describes reinsurance markets as ‘firm but functional’. The broker’s renewal report stated that while the US reinsurance market for hurricane exposed programmes continued to harden, renewals of catastrophe exposed programmes outside of the US remained firm and were influenced by regional loss experience and reinsurer competition to participate in regional programmes.

Bryon Ehrhart, CEO of Aon Benfield Analytics, gave reinsurers a slap on the back: “Reinsurers have generally done a superior job of managing capital through these turbulent times and have continued to renew the core capacity required by our clients,” he said.

Peter Hearn, CEO of Willis Re said that the reinsurance industry is providing sufficient capacity at acceptable prices to its client base this year. “Nine months ago, this outcome was very much in doubt,” he said. “Now, this relative stability will largely hinge on whether positive pricing trends emerge in the primary insurance markets and the level of major catastrophe and financial loss activity.”

Guy Carpenter, the reinsurance broking unit of Marsh concurred, saying that stabilisation in the global financial markets has contributed to the steadying of reinsurance rates, ‘with capital deterioration slowing markedly from the rapid pace witnessed in 2008’. As a result, reinsurance supply remains generally adequate to meet demand.

The key findings of the Willis report (pdf) are:

• Rate increases in the region of 10 to 15% were achieved in capital-intensive classes such as peak zone US catastrophe.
• Merger and acquisition activity has started to pick up, as those with stronger balance sheets seek to adjust their portfolio mix and/or acquire platforms in markets previously difficult to access.
• There is a continuing disconnect between buyers and sellers in the marine sector over the pricing of Gulf of Mexico energy-exposed business, with buyers looking to co-insurance and/or higher retentions in response to high relative prices.
• Rates outside US peak catastrophe zones have struggled to show much real increase as diversification of exposure remains a pricing driver.

The key findings of the Aon Benfield report (pdf) are:

• In the US, predicted hardening caused many programmes to be marketed and placed prior to July 1. Pricing changed at a level consistent with 1 June renewals—increasing 10 to 15%.
• In the Asian market, excluding China and Japan, there were no major changes in coverage, exclusions and conditions in property catastrophe lines. 
• In the UK, rate increases of up to five % were recorded in property catastrophe lines.
• In Latin America, property excess of loss prices rose by up to 5%, with broadly stable terms and conditions and higher levels of retention in certain programmes.
• In Australia, property catastrophe pricing increased by 10 to 15 % overall, and by 5 to 10% on loss-free layers, as a result of large losses arising from the Queensland storms in 2008 and the Victoria bushfires earlier this year.

The key findings of the Guy Carpenter report (pdf) are:

• In the US firm order terms (FOTs) for higher layers grew between 11 % and 14 % relative to 1 July 2008 FOTs, while slightly larger increases—14 to 16%—were realised at lower layers.
• In Latin America preliminary data varied by country, but upward pressure on pricing was offset by supply and local market competition, which keep reinsurance rate increases contained.
• The 1 July 2009 marine reinsurance renewal remained consistent with the 1 January 2009 renewal, with rates increasing by 5 to 10% for XOL programs, based on loss history and catastrophe exposure.
• Capacity was limited for offshore energy programmes, for Gulf of Mexico windstorm in particular. As pricing and attachment levels increased, terms and conditions also tightened. A number of insureds chose to self-insure Gulf of Mexico assets, leading to a dramatic drop in aggregate risk limits.

Links

• Aon Benfield
• Guy Carpenter
• Willis

Tags: Reinsurance, Renewals

This entry was posted by Garry Booth on Thursday, July 2nd, 2009 at 12:47 pm and is filed under Insurance Commentary.