Reinsurance Prices Further Decline Through Midyear

Midyear renewals were quiet, as market participants “hunkereddown”

Reinsurance prices continued on their downward trajectory duringthe 2005 midyear renewal season, but there is still good disciplineseen in the marketplace, according to reinsurance experts.

According to Steven Bolland, president of Gill and Roeser, a NewYork-based reinsurance brokerage, reinsurance prices continued tosoften in the midyear, but, he observed, “people are trying to keepdeclines to a reasonable limit.” Mr. Bolland said he saw 5-to-10percent price declines for both property-catastrophe and casualtyreinsurance, while Florida-exposed property-cat risks saw rates goup 10-to-20 percent.

The general consensus at the moment is that prices are movingquietly downward but are still disciplined, Mr. Bollandobserved.

John Gilbert, chairman of Holborn Corp. in New York, said he sawan even larger price decline for property-cat risks during themidyear–a decline in the 8-to-15 percent range excludingFlorida-exposed risks–while the casualty price decline wasminimal.

Benfield Inc., a reinsurance intermediary, agreed that it isseeing “a little bit of slide” in pricing, but not much.

Chuck Hewitt, executive vice president of client development atBenfield, said he saw up to an 8-to-10 percent price decline incasualty reinsurance and a 3-to-5 percent fall in property-catoverall. “Minimum prices continue to hold, and that floor thencreates discipline throughout programs,” he observed.

On the property-cat side, one reason that reinsurers are willingto write risks at lower prices is because carriers are doing goodjobs of managing their catastrophe exposures. “As reinsurers seecompanies developing a better and more efficiently managedportfolio of catastrophe risks, they are willing to assume the riskfor a little less money, because there is less uncertainty in itand it's a better managed book,” Mr. Hewitt said.

On the casualty reinsurance side, Mr. Hewitt observed,reinsurers are becoming more comfortable with the price adequacygenerated on primary products. “Since about 2001, casualty priceshave been driven up in primary policies and terms have tightened.We saw clearly in 2004 that there is a pricing adequacy,” Mr.Hewitt said. So now, reinsurers are saying, “We now have a productthat looks well-priced, and that ought to flow through into thereinsurance in the form of lower rates,” he said.

Looking at specific lines, medical malpractice reinsuranceprices are still pretty firm. “People are still trying to figureout what the right answer is for medical malpractice pricing. Aslong as that uncertainty is there, it will be firm,” Mr. Hewittsaid.

Directors-and-officers reinsurance pricing seems to be somewhatstabilizing compared to the January 1 renewal. For workers'compensation, prices in some states are reflecting benefit changesthat have been implemented to get a better control over losscosts.

The mood during the midyear renewal was rather quiet andsubdued, as reinsurers, insurers and brokers are all quietly goingabout their business, “keeping their heads down, not making toomany waves, hoping that all the investigations and publicity willsoon pass,” according to Mr. Gilbert.

“It's been a pretty quiet renewal. People are hunkering down,”added Mr. Bolland.

Another issue reinsurers are keeping a close eye on, of course,is the Terrorism Risk Insurance Act, the federal backstop programwhose renewal after the current expiration date of Dec. 31, 2005 isstill in question.

“Everyone is hoping it will get solved. But people are puttingendorsements in reinsurance: what happens if TRIA is, or is not,renewed? How do you handle the TRIA risk if TRIA is no longerthere?” Mr. Bolland said.

Basically, the general rule has been that reinsurers have beenfilling the gaps in TRIA and they seem willing to continue tofulfill that role. “But they don't want to give [full] coverage for[terror] events even in the absence of TRIA,” said Mr. Bolland.

Chris O'Kane, chairman and CEO of Aspen Insurance Holdings,agreed that TRIA is one of the issues on review. “What happens ifit's not renewed? We see some appetite to buy terrorism-specificcovers because of this uncertainty–it's not a huge appetite butthere are a few buyers,” Mr. O'Kane said.

“Most people continue to be very concerned that without afederal backstop, the industry will be unable to meet the society'sneeds.”

Flag: Midyear Renewal

The Price Is Right?

Reinsurance prices continued on a slow downward trajectoryduring the midyear renewal season.

o For property catastrophe: Gill and Roeser saw5-to-10 percent price declines outside Florida exposed risks, forwhich rates climbed 10-to-20 percent; Holborn said non-Floridarisks fell in the 8-to-15 percent range excluding Florida-exposedrisks; Benfield cited 3-to-5 percent declines in property-catoverall.

o For casualty business: Gill and Roeserreported 5-to-10 percent price declines; Holborn reported minimaldeclines; Benfield saw 8-to-10 percent price declines.

o Med mal and terror coverage arewildcards.

During the midyear renewal reinsurers, insurers and brokers were“keeping their heads down, not making too many waves, hoping thatall the investigations and publicity will soon pass.”

John Gilbert, Chairman, Holborn Corp.