NU Online News Service, April 2, 9:30 a.m. EDT

With the exception of parts of Latin America, reinsurance rates for most of the world continued to decline at the April 1 reinsurance renewals period, a brokerage said.

Guy Carpenter & Company, LLC, in its Annual Review took note of the Chile earthquake and said up to half of catastrophe loss ratio budgets were consumed, causing reduced headroom for a larger catastrophe later in the year.

It also predicted that this budget scenario, "along with buoyant balance sheets, lower investment yields and thinner reserve releases will put pressure on returns, sustaining active capital management and perhaps, in time, stabilizing the market."

The report, "April 1 Reinsurance Renewals: Rates Lower, Returns Under Pressure," said that regarding earthquake coverage, terms remained unchanged from 2009.

Chris Klein, Guy Carpenter global head of business intelligence, said in a statement, the April 1, reinsurance renewals "are dominated by Asia, but were conducted with one eye on the catastrophes that occurred elsewhere in the world.

"Reinsurance rates in most cases declined, continuing the pattern observed at the Jan. 1, 2010 renewals, which occurred largely due to the effects of healthier (re)insurer balance sheets. The large earthquake in Chile and, to a lesser extent, windstorm Xynthia in Europe, both striking in the first quarter of 2010, caused pause for thought."

Guy Carpenter found there have been modest increases in capacity sought overall by the market and reinsurer capacity has grown to match the increased demand, but there was limited evidence of a tightening market later in the season following the Chile earthquake, as reinsurer managements began to scrutinize earthquake exposures around the world.

According to the report, for the first time in several years there was some signing down of placements for the earthquake.

Regarding excess of loss coverage, price declines were found to have averaged 5 percent.

"Earthquake XOL remains a popular class with reinsurers and there was continued overcapacity. There were no capacity issues on the major placements," the report said.

Pricing for U.S. property and catastrophe reinsurance at April 1 saw the continuation of the decreasing pricing trend in evidence at Jan. 1, the brokerage said.

It noted that capacity continued to be plentiful--a critical element in companies' ability to secure favorable terms and conditions. Individual renewals vary significantly, based on each company's own experience and positioning, the report advised.

U.S. catastrophe pricing for nationwide companies decreased 8 percent when not factoring in the impact of the catastrophe model changes, and by 13 percent on average when adjusted for these changes, said Guy Carpenter.

The report found that the Latin American region, while not a significant source of April 1 renewals, was providing "an early indication of the implications of the Chilean earthquake for pricing and terms and conditions."

Preliminary estimates of the aggregate loss arising from the earthquake vary widely, the report noted and speculated the market may continue to evolve going into the July 1 renewals.

Overall terms and conditions in the Latin America region as a whole appear to be only modestly affected and in some cases, unchanged by the earthquake. However, pricing varies by country, according to the analysis.

In Japan rates were found to be declining in most classes. Specific changes varied by line of business, and there were occasional exceptions on problematic lines, such as marine hull proportional treaties, the report noted.

Total capacity sought by buyers for their major catastrophe exposures was called similar to the expiring year, with reductions by some cedents and increases by others.

The effect of the Chilean earthquake was said to be limited, though Guy Carpenter said it is possible that timing may have played a part, as many of the major placements were quoted, priced and, in some cases, completed before the effects of this loss could be fully realized.

Overall, the renewal in Japan was smooth and perhaps easier for buyers than in many previous years, reflecting a generally softer market. With few major issues or changes to terms and conditions, renewals were completed within similar timetables as compared to prior years, the report said.

In the Korean p&c segment, price changes ranged from decreases of 7.5 percent to increases of 2.5 percent, reflecting the variety of changes and experiences that included increased aggregates, deductibles and, in some cases, limits, the brokerage found.

Korea's property risk segment, it was noted, was affected by the Samsung loss of late March 2009, which occurred too late to be reflected in the April 1, 2009 renewal.

There was a second large loss in November 2009. Both losses were factored into the April 1, 2010 renewal, and loss affected treaties sustained increases of 10 to 15 percent. For loss-free treaties, rates were down 5 to 10 percent.

Pricing was down 10 to 20 percent in the liability market. Loss experience has been light, making the business more attractive to underwriters, Guy Carpenter said.

Special Reports /

Re Rates Mostly Decline At Renewals: Guy Carpenter

Related Stories

Recommended For You