Brokers Say Reinsurance Rates Inching Upward

The economic turmoil is having some positive impact on reinsurance industry prices with modest rate increases being seen and demand for products growing as the Jan. 1 renewal season came to a close, two prominent brokers said in recent reports.

Reinsurance broker Guy Carpenter said today that its World Rate on Line (ROL) index showed an 8 percent increase, calling the reinsurance rate increases “moderate on average” at Jan. 1 renewals.

The upward climb was in reaction to “the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record.” However, those increases were “tempered by large capital positions” at the start of last year, which allowed carriers to absorb losses, the report said.

The generalities, Guy Carpenter continued in its report, end there because the combination of loss history, geography and line of business “led to wide differences in pricing.”

“The unprecedented turmoil in global capital markets during the second half of 2008 has ravaged the balance sheets of many financial institutions,” Peter C. Hearn, CEO of Willis Re, said in a statement commenting on the broker's quarterly report, titled “Willis Re 1st View, Capital Rules.”

“Reinsurers, while not currently impaired, have recognized that in the current financial market climate obtaining new post-event capital will be both difficult and expensive. As a result, reinsurers are seeking to optimize returns on existing capital bases via constrained risk appetites and elevated risk charges,” said the report.

While Guy Carpenter's overall ROL index points to an 8 percent increase, for the United States the increase was greater at 11 percent.

Guy Carpenter said for U.S. national programs the increases ranged from 8 percent to 12 percent, but regional carriers' experience varied widely. Prices rose by 30 percent to 40 percent for “loss-suffering programs in the Gulf of Mexico, though some loss-free programs in the Atlantic regions registered decreases.”

Guy Carpenter went on to say that the averages do not reflect the “underlying realities” on a program-by-program basis, noting a number of factors that could affect pricing.

While the United States experienced the highest catastrophe price increases, Continental Europe was “relatively stable,” and the United Kingdom's experience ranged from decreases to very modest increases of up to 5 percent, Guy Carpenter noted.

Last year was a record-setting Atlantic hurricane season and above-average manmade catastrophe losses put 2008 as among the costliest on record, Guy Carpenter said.

Total insured losses for the year stood at an estimated $50 billion, according to a Swiss Re report the broker cited, and the 10-year moving average “continued its relentless rising trend in 2008,” going from $35.5 billion in 2007 to $38 billion.

In the report, Willis Re said for U.S. property nationwide, reinsurers “are seeking to reduce event limits to restrict the amount of catastrophe cover given.” This area saw the most pricing volatility with some large insurers seeing increases of 25 percent.

On the casualty side, U.S. placements with better than average or no signs of loss development saw slight rate increases “to compensate for loss trend and three years of continuous rate decreases.” Those that did have losses or had signs of losses experienced “more significant rate increases and some tightening terms and conditions,” said Guy Carpenter.

Copies of Guy Carpenter's report are available at www.gccapitalideas.com and the Willis Re report can be found at www.willis.com and browsing publications.