Reinsurance Rates May Moderate Slightly

Competition has done little to reduce insurance rates for large risks with coastal or earthquake exposure, but reinsurance rates may show some slight improvement this year, according to a brokerage firm's report.

That analysis comes from NAPCO, an Edison, N.J.-based wholesale brokerage, in a report written by David Pagoumian, NAPCO president and chief operating officer.

The NAPCO examination of the large property market found that for cat-prone areas insurers have “simply tempered rate increases” and loosened some terms and conditions to retain accounts, despite coffers brimming with capital and increased competition.

However, Mr. Pagoumian does write that while the market for such risks is very difficult, “opportunities often exist to improve property insurance programs. Uncovering them, however, is not easy.”

For properties without large losses and catastrophe exposures, prices are being driven down the report said.

Regarding reinsurance, the NAPCO analysis found that catastrophe-exposed property “remains the key exception” to a trend of abundant capacity and softening prices.

However, NAPCO said the first-quarter of this year has started to show “signs of temperance” in the marketplace.

Accounts with catastrophe exposures, depending on “premium correction” at their previous renewal, should see some rate stabilization and “single-digit rate decreases are possible through creative restructuring and introduction of new insurance carriers into the program,” according to the report.

Major terms such as deductibles may not change for cat-prone account renewals, but restrictions such as for excess layers are loosening, according to NAPCO.

The report said for accounts without significant cat exposure and good loss experience there should be moderate reduction in reinsurance rates, “and in some rate instances double-digit reductions.

Underwriters, the report said, are under pressure to grow, and when approached with “a thorough analysis of properties that meet their risk appetite” may provide better terms, conditions and limits.

NAPCO advised that at this point there seems to be little advantage in increasing already high reinsurance retentions because “carriers are not rewarding them with adequate rate reductions.”