NU Online News Service, Jan. 4, 9:13 a.m. EST
Reinsurance rates across most lines of property-catastrophe business declined for Jan. 1, 2010 renewals, according to a study released today by reinsurance brokerage Guy Carpenter & Company, LLC.
The firm, in a report titled “Rates Retreat as Capital Rebounds: Global Reinsurance Renewals at Jan. 1, 2010,” said its World Catastrophe Rate on Line (ROL) index declined by 6 percent.
“A combination of factors–including the rally in global financial markets, relatively low catastrophe losses in 2009 and lingering recessionary effects on demand–has resulted in an excess of supply and heightened competition at this year’s Jan. 1 renewal,” said Chris Klein, global head of business intelligence for Guy Carpenter, in a statement.
“As a result, what we saw was an unusually slow renewal, in which a number of contracts did not close until very late in the season, as buyers sought to gain maximum pricing advantage,” he added.
“As we move into 2010, it’s safe to say that the property and casualty reinsurance market has weathered the global financial crisis and emerged in a relatively strong position, with abundant capital and ample capacity for most lines of business,” according to Mr. Klein.
“At the same time, the environment in which reinsurers operate will continue to be influenced by global economic conditions as much as underwriting decisions, and these macroeconomic factors will continue to warrant close attention,” he concluded.
Highlighting some of the reasons for the declines, Guy Carpenter noted that prices for property-catastrophe risks in the United States decreased by an average of 6 percent.
However, the report added, the picture is “somewhat complicated by recent adjustments to catastrophe models that have decreased predicted losses for earthquake and wind perils.” Taking these adjustments into consideration, rates declined by as much as 11 percent on average, Guy Carpenter said.
The exception to this general trend is the Midwest, where significant tornado and hail exposure losses have led to increases.
Catastrophe pricing in Continental Europe was flat to 5 percent lower, despite a number of localized losses in a year of above-average weather-related events, the report noted.
United Kingdom property-catastrophe rates declined between 5 percent and 10 percent, while risk excess prices were flat to down 15 percent, subject to loss experience.
Treaty retrocession saw a modest increase in capacity, as two new underwriters in the Lloyd’s and Bermuda markets entered the market, while a number of existing underwriters showed an increased appetite, according to Guy Carpenter.
Several potential new suppliers are poised to enter the market should a large loss turn pricing significantly, the brokerage reported.
Commenting on casualty lines, rates for U.S. casualty lines were flat to down 10 percent over the past two renewal cycles. Some pockets of resistance remained, with rates for financial institutions professional indemnity, particularly in London, showing single-digit increases, the report noted.
In other lines, rate changes for aviation risks were essentially flat, with increases largely dependent on size of loss, exposure changes and overall program premium banks, Guy Carpenter said.
Marine rates were down by an average of five percent in a market where capacity is growing and ample, with widespread price-cutting, the brokerage reported.
Guy Carpenter noted that 18 new catastrophe bond issues came to market in 2009, easily exceeding the 10 issues reported in 2008. The broker said the cat bond market will continue to provide an increasingly attractive and worthwhile supplement to sponsors’ risk transfer programs in 2010.
Merger-and-acquisition activity regained some momentum in 2009, as insurers turned to the capital markets to address a wide range of strategic and tactical needs, according to Guy Carpenter.
On the economic side, improvement in insurer investments was a great driver of profitability and capital adequacy in 2009, according to the report. The numbers were also helped by reserve releases, but there are indicators that the benefit from those actions will decline in the future, the broker warned.
Inflation could become an issue over the longer term, noted Guy Carpenter–particularly for longer-tail writers whose premiums written today may be less able to cover inflated claims in the future.
Both the report and downloadable charts are available at www.gccapitalideas.com.