London Players Assess Japan EQ Impact On Global Market

"Last year we saw rates rise in offshore energy in the wake of Deepwater Horizon, and we're seeing some of that come across to marine liability."

Moving back on land, he says rates are "definitely rising on any catastrophe-exposed property business and "capacity is contracting because people are nervous."

"We haven't even hit the windstorm season at this point."

BMS's Crawley says earnings are being depleted in the reinsurance community, referring to a number of worldwide losses. "Certainly any idea that international catastrophe-reinsurance business will be profitable in 2011 has already gone away."

While there's been speculation about whether the Japanese loss by itself will drive a market change, Crawley anticipates it will just be another earnings hit rather than a major capital event that could change the market overall. "If there are any further losses, we may well see a change," he adds, suggesting that "further losses" need not be multibillion-dollar hits

A series of smaller losses could "have just as great an impact—if not more" for reinsurers that are "running bigger nets" either because retrocessional capacity is scarce or only available at a high premium.

Lloyd's entities and multidisciplined reinsurers are in better shape than single-entity property-catastrophe reinsurers, he adds. Reinsurance is only a part of what Lloyd's syndicates write, and within that catastrophe is also just a portion—not the entirety of reinsurance books.

LONDON VS. U.S.

That multidisciplined approach is one factor that continues to make Lloyd's attractive from a buyer's perspective, Crawley says. He adds that "there is a growing appetite to trade with the syndicated market."

"People are concerned with having all their eggs in one basket." No matter how strong insurers' balance sheets are, risk managers do look at the way Lloyd's operates and find it attractive to be able to spread their risks around to a multitude of players, he says.

O'Donohoe says customers who have bought coverage in London for the past 20 years are sticking with those relationships. "Proportionately, London has maintained its position" even as the entire global insurance market—including London—saw premiums shrink.

There is competition "where the U.S. domestic market wants to keep [domestic] business rather than London getting it. But a lot of the buyers who have been around the block before have been reluctant to completely jettison London participation from their programs," Donohoe says.

While rigorous oversight from Lloyd's Franchise Board keeps the market healthy, Crawley reports that Lloyd's has maintained the same capacity for 2011 as it had for 2010.

In North America, Crawley senses a "shift in the marketplace" occurring for June 1 and July 1 reinsurance renewals as U.S. primary-insurer results worsen against the backdrop of global reinsurance losses.

Before the Japanese disaster, "we were talking about rate reductions of another 5-10 percent. That has gone away. Reinsurers are saying no to further reductions. In fact, there is discussion about whether reinsurance prices will go up."

He adds that "there will be some heat over the fact that a lot of American companies are suffering from their own deterioration in results and were banking on getting some reinsurance rate relief."

He foresees a crossroads ahead as to "what reinsurers are willing to do and what the reinsurance buyers are expecting."

He adds, "It's not extreme. We're talking about some people not giving rate reductions and others pushing for some modest increases."