Reinsurance prices continue to decline, with property and liability renewal rates lowering, a reinsurance brokerage said today.
Guy Carpenter & Company LLC made that finding in a report released today on property-catastrophe market conditions at July 1 reinsurance renewals.
The report found that risk-adjusted pricing dropped between 10 percent and 20 percent in 2007.
According to the briefing, both lower and higher layers declined by double digits relative to the July 1 renewals, with quotes and firm order terms (FOTs) down, compared to the previous year.
FOTs for higher layers were down between 15 percent and 20 percent year-over-year. Lower layers sustained declines of 10 percent to 15 percent.
In addition, quote ranges narrowed, as reinsurers responded to the realities of the market, the report found.
"Even as we see this continued decline in rates, there are a number of factors adding some stability to the reinsurance markets," Chris Klein, Global Head of Business Intelligence, Guy Carpenter, said in a statement.
"As time passes, the absence of a mega-catastrophe has made carriers wary of being caught unprepared," said Mr. Klein.
He added, "Furthermore, global economic conditions have reduced equity valuations, putting pressure on carriers to increase the profitability of their underwriting."
For casualty lines, the briefing found that the reinsurance market is showing more discipline than the primary market.
Major players in primary liability lines are pursuing market share aggressively and sharp decreases in primary pricing, coupled with pressures on ceding commissions, are pushing some reinsurers to the sidelines.
In several cases, reinsurers are seeking to switch from proportional cover to excess of loss, where they believe they have more control over the price of their product, the report found.
Looking to the future, there is a long way to go until Jan. 1, 2009, the next renewal milestone, according to the online report. Both cedents and reinsurers will be monitoring developments in the economy, with the challenge to maintain profitability in light of pressures on both the underwriting and investment sectors, Guy Carpenter said.
The brokerage advised that two major factors can be expected to restore some stability to reinsurance markets. As time passes and a record-shattering disaster does not occur, fears of a natural mega-catastrophe appear to rise. Further, the weak global economy is reducing equity valuations, putting pressure on securing profitability on the underwriting sector of the business, the briefing said.
Outside of the United States, price drops were below the market average because of recent increases in the frequency of smaller catastrophes. In Caribbean markets, programs were found to be significantly oversubscribed, reflecting the overcapacity in the marketplace and the need for reinsurers to post revenue gains, according to the report.
A full copy of the report is online at www.guycarp.com.
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