Pushed up by limited capacity, U.S. property-catastrophe reinsurance rates for April 1 renewals had increases up to 14 percent for national programs, a reinsurance brokerage reported.

Guy Carpenter said reinsurers' capital has been crimped by investment losses.

Rates for national programs jumped between 10 percent and 14 percent on a risk-adjusted basis, the firm said in a report last week. The report said the latest increases extend a trend that began at the beginning of the year, noting that rates increased 11 percent on average for Jan. 1 renewals.

During the April renewals, the Northeast saw increases between 6 percent and 8 percent, Guy Carpenter said.

Capacity needs, regions and specific perils ultimately influenced the final rates that insurers were able to secure.

For higher layers, prices were up 14 percent to 16 percent year-over-year, and they rose 10 percent to 14 percent for lower layers, said Guy Carpenter.

The report by Lara Mowery, managing director and head of global property specialty, explained that market competitiveness can be measured by the ratio of firm order terms (FOTs) to average quotes, with the ratio low in a competitive market when FOTs are accepted considerably below quotes.

For the U.S. market as a whole, FOTs ended up at 94.8 percent of average quotes at April 1, about equal to the ratio calculated at the Jan. 1 renewal, indicating no change in the competitiveness of the market this year, the brokerage found.

Guy Carpenter said discounts were more pronounced for the Northeast, where higher-layer FOTs were discounted 8-to-10 percent relative to quotes, with lower layers seeing 10-to-12 percent discounts.

Pricing trends at this renewal, the report said, were influenced substantially by the reduced availability of capacity, especially for perils in historically capacity-constrained zones and program-specific loss histories.

“Capital has undoubtedly been constrained,” the report said, and this has had an impact on pricing. It added that some reinsurers have already used up their allocated capacity for transactions other than renewals, and in certain cases are having to reduce renewal lines as well.

Using the 20 firms tracked in the Guy Carpenter Global Reinsurance Composite as a proxy for capital availability, the brokerage found that shareholders' funds dropped 18 percent last year–reflecting lost capital of $19.7 billion.

It said unrealized losses on investment assets were largely responsible for the decline in capital, accounting for 53 percent of the decline in shareholders' funds in 2008.

Looking at the Florida reinsurance market, the company said renewals are already underway, with worries about price hikes and capacity driving the early start.

The report noted that the outcome of the current Florida legislative session and decisions by Florida Hurricane Catastrophe Fund trustees could have a profound impact on the market. It noted that the ultimate structure of the fund and whether it will purchase its own reinsurance is still to be determined.

The fund is underfunded, and the report said discussions are underway with the U.S. Department of Treasury to address its “significant gap in coverage.” An effort is also being made to statutorily allow insurers to recoup the cost of purchasing additional reinsurance within the Temporary Increase In Coverage Limit layer should funding for TICL remain in question.

“Insurers considering entering the market late with the hopes of securing lower, last-minute rates are unlikely to accomplish their objectives,” the report advised. “As capital is still constrained, early action will be crucial to managing the cost of coverage.”

Special Reports /

April Renewals See Some Reinsurance Rates Up 14%

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