Reinsurance Rates Continue Falling, Says Aon

Reinsurance rates for U.S. risks are expected to continue to see a downward plunge as capacity continues to increase, according to a report released by Aon Re Global.

Midyear reinsurance renewal rates for the June 1 to July 1 period are expected to continue to soften, while terms and conditions are also expected to see improvement for customers, Aon Re said yesterday.

"Supply continues to grow at a faster rate than that of cedent demand, which implies continued softening," said Bryon Ehrhart, president and chief executive officer of Aon Re Services, in a statement, reflecting the global view of the marketplace.

For the United States, national personal lines are expected to see rate declines between 10-to-15 percent, while U.S. regional personal lines decreases are expected to be as high as 15-to-25 percent.

U.S. standard and complex commercial lines are expected to experience decreases in the 10-to-15 percent range.

Aon Re, a part of Chicago-based insurance broker Aon Corp., said among some of the reasons for the declines are low severity of property catastrophe losses over the past two years; up to 20 percent returns on equity; stability or anticipated decrease in key U.S. perils of property catastrophe loss models; limited impact on most reinsurers from the subprime crisis; and increased interest on the part of capital market investors to invest in alternative risk vehicles.

Aon Re said it would take a catastrophe insurance loss in the range of $30-to-$50 billion to change the direction of property catastrophe reinsurance rates, terms and conditions.

The report added that "a substantial majority of the world's largest property insurers now utilize risk transfer capacity through sponsorship of catastrophe bond transactions."

This represents 10-to-30 percent of program capacity for insurers buying more than $500 million of coverage for peak reinsurance aggregate zones. This trend is expected to continue, Aon Re said.