Economic turmoil and an increasing demand for coverage is prompting reinsurance sellers to hike rates, with double-digit price increases seen on average for U.S. risks as the Jan. 1 renewal season came to a close, prominent brokers report.
Guy Carpenter said its "World Rate on Line" (ROL) index showed an 8 percent increase globally, characterizing the reinsurance price hikes as "moderate on average" for the latest Jan. 1 renewals. For the United States, price hikes were even steeper–up by 11 percent.
The upward climb was in reaction to "the dual pressures of a financial catastrophe and the second most expensive property-catastrophe year on record," according to the firm. However, those increases were "tempered by large capital positions" at the start of last year, which allowed carriers to absorb losses, the report added.
The generalities end there, according to Guy Carpenter, 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, chief executive officer of Willis Re, said in a statement commenting on the broker's own quarterly report: "Willis Re First 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.
Meanwhile, Willis noted, "primary insurance companies, facing new capital pressures, are increasing their demand for reinsurance as they explore buy-downs and other reinsurance mechanisms to protect and enhance their capital positions."
Guy Carpenter said for U.S. national programs, price increases ranged from 8-to-12 percent, but regional carriers' experience varied widely. Prices rose by 30-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 hikes of up to 5 percent, Guy Carpenter noted.
Last year was a record-setting Atlantic hurricane season, and above-average man-made catastrophe losses made 2008 among the costliest on record, Guy Carpenter said.
Total insured global losses for the year stood at an estimated $50 billion, according to a Swiss Re report the broker cited, while the 10-year moving average "continued its relentless rising trend in 2008," going from $35.5 billion in 2007 to $38 billion.
In its report, Willis Re said that 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 trends and three years of continuous rate decreases," said Guy Carpenter, while those that did have realized or anticipated losses experienced "more significant rate increases and some tightening terms and conditions."
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