NU Online News Service, Jan. 3, 12:04 p.m. EST
Only catastrophe-exposed and loss-affected reinsurance contracts experienced any significant upward movement in rates, according to one top executive.
During a conference call, Aspen Re chief executive Brian Boornazian says the "insurance and reinsurance markets are starting to accept the need for change," as the markets start to recognize that the risks taken need more rate for adequate returns.
However, more change is needed "to reach rate levels that are adequate for exposures, and other external factors that affect our industry's profitability," Boornazian says from Bermuda.
Though all signs—very high catastrophe losses, the release of RMS Version 11, and low investment yields—point to the formation of a hard market, Boornazian says the market began to harden only in certain lines at Jan. 1 renewals, but it is "not a classic hard market."
According to Aspen Re's head executive, rates at Jan.1 renewals rose between 7.5 percent and 15 percent for larger property insurers and excess and surplus lines writers in the U.S. More increases were seen on contracts affected by losses.
"Winter storms and record tornado activity in 2011 caused significant market losses," Boornazian says. "As a result, prices have adjusted materially on loss-affected contracts, sometimes by 25 percent or more."
Turning to Europe, the renewal season for property business saw only low sing-digit percentage increases, Boornazian reports. In Asia, January is not a significant time for reinsurance renewals. Real change here is needed, Boornazian says, but "early signs are that we will see inconsistent corrections."
Rate improvements in casualty reinsurance "remains elusive," he adds. Factors that have kept rates from rising—excess capital in the market, reserve releases, and slower economic recovery—may be shifting to point toward positive signs for rate improvements. For instance, reserve releases have been reduced recently and carriers are walking away from underpriced business, according to Boornazian.
While the international casualty market remains soft, the U.S. casualty market saw "pockets of rate increases in response to contracts with loss development, and very limited requests for rate decreases."
Looking at specialty reinsurance, Boorniazian says there was mixed rate results at Jan.1.
The energy market saw rate increases of at least 25 percent—a continuation of the effects of the Deepwater Horizon disaster.
Marine contracts were renewed at flat rates and increased competition in the terrorism market has led to rate reductions of between 5 percent and 15 percent, Boornazian says.
In a late December report, independent reinsurance brokerage firm Holborn says U.S. reinsurance programs with rate increases outnumbered those with decreases over the last year. Primary rates in the U.S. have been rising.
The firm says it expects to see more adverse development from past catastrophes—adjustments to losses from earthquake and tsunami in Japan, quakes in New Zealand, and flooding in Thailand. The losses will reduce reinsurers' profits in 2012, Holborn says.
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