NU Online News Service, July 8, 3:55 p.m. EDT
Although reinsurance rates have increased recently, only moderate growth in market volume can be expected this year, according to an analysis by Holborn Corp. insurance brokerage.
The New York-based firm said in its midyear report on the reinsurance market that the amount of capital in the market is expected to stabilize, while the leverage ratios of reinsurers are expected to fall by year's end.
The acquisition of Paris Re by Partner Re, along with the likely acquisitions of IPC Re and Chaucer at Lloyd's and other rumored acquisitions, has led to an expected increase in the number of mergers, the report noted, and the increase in mergers will likely reduce capital and capacity.
Reinsurance underwriting has remained profitable, Holborn said, despite large capital losses sustained by the reinsurance industry in the first half of 2009.
There were losses in mortgage and bond insurance and professional liability lines, but underwriting still yielded earnings, Holborn said.
With the economic downturn, the availability of alternative sources of reinsurance capital, including cat bonds and collateralized capacity, was reduced, Holborn added.
In the United States, reinsurance prices for ceding companies began to rise for the first time in two years with per program capacity remaining at or higher than the all-time record levels from 2008, Holborn said.
Catastrophe prices continued to increase with reinsurers reducing capacity and more buyers seeking to buy, the report said.
Many insurers that are dealing with national accounts have dropped their cat bond placements and bought extra limits in the reinsurance market, Holborn found.
The study said that national firms use peak capacity in many different zones and have had to deal with larger increases than regional carriers.
Holborn noted that worldwide reinsurance market capital has shrunk for the first time since 2001, while leverage ratios increased for the majority of reinsurers.
The capacity for reinsurers in the United Kingdom decreased due to a fluctuating exchange rate. Reinsurer's earnings also fell due to investment write-downs, price reductions and large losses, it was observed.
However, first-half underwriting profits improved and the British pound began to strengthen in the second quarter, Holborn said.
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