Willis Reinsurance Study Finds Firm Casualty Pricing
NU Online News Service, Jan. 6, 3:59 p.m. EDT?A brokerage firm review of the reinsurance marketplace has found the casualty market has kept pricing discipline while rates have softened for aerospace and marine risks.[@@]
The major driver for price change in the reinsurance market has been regional catastrophic events, Willis Group Holdings said in a report today.
The brokerage found that "despite the losses from the four U.S./Caribbean hurricanes, capital and reserves for the reinsurance market should not be severely impacted."
Grahame Millwater, chairman of the London-based firm, said the frequency, rather than the severity of the four hurricanes in 2004 will be remembered most by the industry, since it resulted in ceding companies retaining significant portions of the losses.
"However, these claims did influence reinsurers' attitude to pricing, and expectations of wholesale price reductions were quickly dampened for loss hit programs that saw increased rates," Mr. Millwater wrote in the foreword to the report.
As for the terrorism peril, the report said there is growing emphasis on the quality of exposure data and technical knowledge, which will test the credibility of the catastrophe models.
"Although the future of TRIA [Terrorism Risk Insurance Act] remains unclear, to date this certainty has not caused significant dislocation in the market, and terrorism cover is generally more available than in the preceding 12 months," Mr. Millwater wrote.
Security continues to be a critical factor in selecting reinsurers.
"We have seen an increase in the use of capital markets where fully collateralized placements are available," Mr. Millwater wrote. "The demand for this type of payment will only increase in the coming years."
In addition, recent forays into the traditional market by hedge funds offering fully collateralized capacity has created interest in the field.
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