NU Online News Service, April 22, 2:59 p.m.EDT

After record 2011 first-quarter catastrophe losses that outpacedman-made and natural catastrophe losses for all of 2010,facultative reinsurance rates in many regions have begun to firm,and are set to increase through 2011, according to an Aon Benfieldreport.

According to the report, “Bringing Fac Into Focus: Q1 2011Review,” the 2011 first quarter “will go down in history as beingthe worst quarter ever for the brutal severity of losses to theglobal insurance and reinsurance markets.” Aon Benfield says theinsurance and reinsurance markets are expected to see about $52.6billion in losses, which is a $12 billion increase over the totalman-made and natural catastrophe bill of $40.6 billion in all of2010.

Aon Benfield also says the industry faces the impact of changesin Risk Management Solutions’ (RMS) 11.0 model along with climbingcombined ratios and a continued low investment return environment.“Together,” Aon Benfield says, “these [factors] have resulted in arapid slow down in the ubiquitous rate reductions of 2010 and willlead to increased rates in the most impacted geographies during thecourse of 2011.”

According to reinsurance intermediary Gill and Roeser,facultative reinsurance is reinsurance under which the cedant hasthe option of submitting and the reinsurer has the option ofaccepting or declining individual risks, as opposed to treatyreinsurance where a reinsurance agreement covers a book or class ofbusiness that is automatically accepted on a bulk basis by thereinsurer.

In the 2011 first quarter, Aon Benfield says U.S. propertycatastrophe-exposed accounts saw an average 3 percent drop infacultative pricing domestically and a 5 percent reduction inLondon. Non-cat-exposed risks saw 3 percent drops both domesticallyand in London. Aon Benfield says this pricing represents a changefrom this time last year, when facultative cat and non-cat ratesplunged 15 percent.

In the Asia-Pacific region, which saw the bulk of majorfirst-quarter catastrophes, domestic catastrophe rates in manyparts of the region trended upward “in a direct response to themagnitude of insured losses from [Cyclone Yasi] and both NewZealand earthquakes [September 2010 and February 2011],” AonBenfield says.

Catastrophe rates in the domestic Australian and New Zealandmarkets were up 10 percent in the 2011 first quarter compared to a3 percent drop a year ago. Non-catastrophe rates dropped 8 percent,as exposures did not see any major losses, Aon Benfield notes. Inthe 2010 first quarter, non-catastrophe rates in the region dropped10 percent.

In Japan, Aon Benfield notes that both the domestic and Londonmarkets had already quoted many renewals before the March 11earthquake and tsunami and those quotes were honored on April 1.Since March 11, “early indications are that cat rates in both thedomestic and London markets will rise by as much as 30 percent,whilst non-cat rates will remain flat in both markets,” AonBenfield says.

Elsewhere in the Asia-Pacific region, Aon Benfield says domesticmarkets saw continued rate declines, while the London market took adifferent approach and offered flat renewals for both catastropheand non-catastrophe business.

Aon Benfield says the Europe, Middle East and Africa (EMEA)region presents “mixed messages,” but overall shows rate decreasesslowing. For Continental Europe, excluding France, catastropherates were flat compared to down 4 percent in the 2010 firstquarter. The French domestic market, which offered flat rates ayear ago, saw catastrophe rates drop 5 percent in the 2011 firstquarter.

“London market cat rates were flat for Continental Europe in[the 2011 first quarter] compared to 10 percent reductions sametime last year, so evidence of some tightening is being presentedby underwriters,” the Aon Benfield report says.

Rates in the Middle East continued to fall for catastrophe andnon-catastrophe rates.

“In summary,” Aon Benfield says, “markets are reluctant to givereductions for cat business in virtually all regions in light ofthe major cats experienced so far this year. In [the 2011 secondquarter], we anticipate that this reluctance will result intargeted cat rate increases in some of the European domesticmarkets, the U.S. domestic market, Australia, New Zealand, Japanand in the London market for cat business emanating from[Asia-Pacific], Latin America and the Middle East.”