Aon Finds Reinsurer Competition Growing

NU Online News Service, Feb. 24, 1:12 p.m. EST?Reinsurance customers are stimulating competition in the marketplace by using more than one provider, but prices should remain fairly strong until next year, according to an international brokerage firm's study.[@@]

The findings were contained in London-Based Aon's 2004 reinsurance renewals report, which concluded that additional players in the reinsurance marketplace are "not necessarily translating into the premium reductions that buyers wanted or expected," Aon said.

According to Aon, prices generally held up because of the reinsurers' continued demand for underwriting transparency and profit.

Aon, which describes itself as the world's largest reinsurance broker, said there have been premium reductions in some lines attributable to competition from Bermuda reinsurance start-ups that are backed with so-called "clean capital."

According to Aon, "the peak of the hard market has been left behind." But while the start-ups have been aggressive, Aon said they have taken a measured approach tempered by strong underwriting discipline. In general, the firm found that reinsurers have continued to pursue underwriting profit, "although fierce competition led to some surrendering a proportion of their rates to defend market share."

The Aon study said reinsurance premiums are likely to drift sideways or downwards over 2004 depending on the line of business, and "we are unlikely to see a significant deterioration in prices, terms and conditions through to 2005."

The new, clean capital operations, Aon said, have made strong inroads into U.S. catastrophe business and European business.

In Aon's view, reinsurers are at a crossroads at which they must decide how they will shape themselves to adapt to a rapidly changing market where an increasing number of reinsurers are equally acceptable to buyers.

Charlie Cantlay, deputy chairman of Aon Ltd.'s Reinsurance division, commented: "The recent renewal season saw the market struggle to reconcile an overabundant supply of capacity with the need for reinsurers to maintain underwriting profit as they continue to build their reserves for the sins of the past. Everyone wanted a little satisfaction from the renewal of 2004, whether buyer or seller, but broadly speaking neither got exactly what they wanted."

Mr. Cantlay said there has been a change in that buyers' perception of the key value in the relationship with their reinsurer is now firmly focused on security ratings, risk diversification and exposure to U.S. legacy risks."

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