Carriers See More Stable Reinsurance Marketplace

"We placed a little more catastrophe reinsurance than we had in the past, and there appeared to be appropriate capacity to take that up at the right price," Mr. Milton from AIG told National Underwriter. AIG has reinsurance relationships with General Re Corp., Swiss Reinsurance Company, XL Capital Ltd. and PartnerRe Ltd., along with a number of smaller companies as well as other new Bermuda reinsurers.

"What we try to do is obtain a pretty diverse population of reinsurers because our capacity needs tend to be large given the size and types of risks that we write," Mr. Milton said.

Generally, AIGs reinsurance renewal season can be characterized as one that was more stable than the two renewal periods following the Sept. 11, 2001, tragedy, Mr. Milton said. He added that the stability of the reinsurance market was seen across-the-board during the Jan. 1 renewal season. "We didnt see any significant tightening. We found that pretty much across property, across casualty lines."

Mr. Milton added that ceding companies have become much more selective in terms of who they want to use as reinsurers, while from the reinsurance-market side, many reinsurers are also doing more due diligence in terms of assessing underlying portfolios, with an intent to determine if what the ceding companies are telling them is actually whats happening.

AIG tends to purchase more proportional reinsurance as opposed to excess-of-loss reinsurance. "On that basis, the reinsurer is really sharing in the underlying rate increase that is being achieved at that particular point in time," Mr. Milton said.

"Reinsurers are looking at whether you are on the right page in obtaining correct terms at the front-end, and they are worrying less about the terms they are getting at the back-end, as long as its a stable renewal."

Catastrophe excess-of-loss reinsurance, he said, is "basically a model book, so whatever the [catastrophe] model says is basically pretty much what we, in fact, get."

Mike Stone, president and chief operation officer at Peoria, Ill.-based RLI Corp., also commented that things were "fairly stable" with "some rates up just a bit while some were down a bit, but not a lot of price change."

"We buy from both the direct and broker markets: American Re, General Re, ERC. We place some in London and Bermuda companies: Endurance Specialty, Arch Capital, AXIS Capital," Mr. Stone said.

A number of RLIs reinsurance renewals took place this Jan. 1 renewal season. "We renewed our [catastrophe] treaty. We renewed our property per-risk treaty. We renewed our basic casualty treaty as well, and our surety treaty. We buy proportional reinsurance and excess-of-loss," Mr. Stone said. He observed that property treaty and catastrophe treaty were stable and fairly flat, while casualty was up a little bit, at less than 10 percent, and surety was down.

Mr. Stone added that terms and conditions were pretty much the same. "The big issue on the property side has been terrorism, and nothing changed there," he said. "Ceding commissions were fairly stable as well."

Reinsurance renewal efforts at Boston-based Liberty Mutual also proceeded as expected, the insurer said. "We did renew a major treaty on 1/1, and I think that it went more or less as we anticipated. This year, there was a fair amount of what I would call stability in the process," said Gary Dubois, chief underwriting officer for the global specialty-casualty line of Liberty International Underwriters and principal reinsurance buyer for that line. "There were rate changes still taking place in reinsurance markets, but we were spared that because there was no significant deterioration in our results."

This renewal season stands in contrast to the prior two renewalsJan. 1, 2002, and Jan. 1, 2003when the renewal processes were fairly chaotic and turbulent. But, Mr. Dubois added, during those times, efforts were also made from both sides to understand each other better, seeking out where each side wanted or expected to be.

"So heading into Jan. 1, 2004, the impression I had was that there were probably more realistic expectations on both sides," with each side knowing where the other "was coming from," he noted.

"Reinsurers are focusing and relying more heavily on quantitative and actuarial analysis," he said. And while there are still important qualitative elementssuch as the insurers underwriting philosophy, approach, strategy and personnelthere is "a tremendous emphasis these days" on the quantitative and actuarial side.

This made the issue of data quality a key one for Liberty Mutual. "The more credible data you can provide to reinsurers, the easier it will make their jobs in arriving at a favorable resolution for the insurer," Mr. Dubois said.

When renewing reinsurance for professional-liability and management-liability lines, he said, there were discussions on topical events such as the ongoing mutual-fund investigations, in addition to talks on asbestos and mold-related exposures.

"We had a lot of discussions with reinsurers about current mutual-fund investigations and exposures that might hit carriers from several different avenues," he said. "You have writers of specific mutual-fund coverage, and you also have ancillary liabilities that would be associated with accounting professions, lawyers and more generic financial-services companies."

Mr. Dubois noted that there is a general perception among the insurers that there has been an influx of capacity by some new Bermuda companies over the last 12-to-24 months that has off-set the absence of some old carriers that have pulled out the reinsurance marketplace.

Summing up his own due-diligence efforts, Mr. Dubois added that he has been focusing heavilyas most cedents areon both the professional and financial integrity of his reinsurance partners.

From Sheboygan, Wis., regional insurer Acuity told National Underwriter that the company was "feeling pretty good" about the reinsurance package it was able to get. "We did take some rate increase on the casualty side. It seemed like the excess-of-loss on the casualty side was probably a fairly hard market," said Patrick Tures, vice president of actuarial and strategic information at Acuity, which strictly buys excess-of-loss reinsurance.

But the property side was pretty flat, he added. "And it seemed like there were more players there. On the catastrophe side, it was actually more favorable. We actually took a rate reduction there." Acuitys biggest reinsurer is PartnerRe Ltd.

Mr. Tures added that one of the strengths his company has with reinsurers is Acuitys status as a super-regional insurer in the Midwest. "Reinsurers like the exposure. They feel they can understand it and price adequately for it. There is no coastal exposure. They feel like they could really get their hands around our exposure," he said.

Tom Joseph, senior vice president at Fairfield, Ohio-based Cincinnati Financial Corp., added that his company also saw little rate change in its reinsurance renewal process for both excess-of-loss treaty and the property-catastrophe treaty, while Barbara Bufkin, vice president of corporate business development at Argonaut Group in San Antonio, Texas, said her company met its market expectations for quality, security and price, along with a slight rate decrease during the renewal season.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 13, 2004. Copyright 2004 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.