NU Online News Service, July 16, 2:14 p.m. EDT

All indicators point to continued firming of the insurance and reinsurance markets for the rest of this year into next, as underwriting margins continue to deteriorate and investments deliver lackluster returns, an analyst's report says.

The report breaks with other recent analyses that have noted a moderation in reinsurance price increases due to ample capacity and strong risk-management capabilities.

The latest report from Stifel Nicolaus states that the combination of global catastrophes; the updated catastrophe model, RMS version 11; and deteriorating underwriting profits driven by “fading commercial reserve releases” should continue to drive rates upward through this year.

Between 2011 global insurance catastrophe losses and catastrophes for this year, reinsurance demand should continue, the report says, adding that demand will be intensified domestically due to the RMS v11 catastrophe model.

The report also says that reserve releases should continue to slow, prompting insurers to address poor accident-year results with rate increases.

On the U.S. reinsurance front, the report goes on to say that pricing is expected to harden over the next 12 months. It adds that the Japan earthquake and tsunami losses last year are considered to be a catalyst for higher U.S. property pricing.

At the June and July 1 reinsurance renewals, price increases were around 7 percent—below Jan. 1 renewal increases of around 10 percent. Abundant capacity was cited as the reason for pricing stabilization.

Other recent reports have differed from Stifel Nicolaus' view of the reinsurance market. Guy Carpenter and Willis Re said in recent reports that the abundant capital, rather than the 2011 cat losses, is the true overriding theme for the reinsurance market, and that ample capacity, combined with careful risk selection, will likely contain price increases and prevent an overall market hardening.

“The reinsurance market is stable and orderly…It is not hardening,” Peter Hearn, chairman of reinsurance broker Willis Re, says in his firm's mid-year renewals report, titled “Looks Can Be Deceiving.”

Special Reports /

Analyst Breaks with Recent Reports; Says Reinsurance Hardening to Continue

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