Pricing Competition Returns To Re Market
London Editor
London
Competitive pricing pressures have been rekindled as a result of the new insurance capacity that has poured into the market post Sept. 11, according to a report released by Benfield Group, the London-based reinsurance intermediary.
Nevertheless, the report warns that the upward trend in pricing prior to the World Trade Center attack was driven by adverse fundamentals which remain substantially unchanged and, as a result, will likely limit an immediate return to soft market conditions.
New capital raised since Sept. 11 comes to more than $16 billion, of which over $6 billion went to five new Bermudian reinsurers alone, the report said.
"Concerns that this new capital may undermine the reinsurance markets ability and willingness to sustain higher pricing encourage a cautious view on the likely duration of hard market conditions," the report said.
However, the report said that an immediate return to soft market conditions is unlikely because the market faces the most unfavorable fundamentals for some years. These fundamentals were "already driving a hardening market prior to Sept. 11 and are likely to continue to underpin pricing," the report said.
With $1 billion-plus balance sheets supported largely by venture capitalists, the new Bermudian reinsurers are "under pressure to meet demanding short-term performance targets," and "have introduced an element of capacity-driven competition," the report said.
Benfield said it concurs with other market observers that the Bermudian start-ups generally did not meet premium targets during the recent January renewals. Nevertheless, their capacity "had an ameliorating effect on both rates and terms in some areas," the report said.
"Greater leniency on terrorism cover in particular seems to have won the start-ups market share at the expense of other markets, especially Lloyds."
Benfield said there has been "a general shift from broad-based general coverage" to specific risk-named perils and an increased focus on exclusion, rather than inclusion, with stricter definitions.
"A key distinction from the previous hard market of 1992-1994 is that, at the right price, capacity is available on most, if not all classes," the report said.
"Rather than automatically excluding terrorism, the major European insurers assumed a flexible approach based on careful risk evaluation," said Benfield in a statement.
"Lloyds syndicates, on the other hand, generally imposed a blanket exclusion, thereby losing business to continental European markets and Bermuda."
The WTC losses accelerated the upward trend in pricing that had already began prior to Sept. 11.
"The degree of rate increase varies widely from 10-15 percent to 200-300 percent," said Benfield. "Generally there is adequate capacity at these higher prices, except for a few specialist areas such as [workers] compensation, but these shortages are easing as certain reinsurers reposition themselves to write business in these areas for 2002."
The report said that cedents that reached the end of multi-year deals on Dec. 31, 2001, have been hard hit with cumulative increases "resulting in 200-300 percent technical rate increases in some cases," the report said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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