Reports: Primary Market Firming, but Reinsurance Market Stable; Not Hardening

NU Online News Service, July 2, 2:39 p.m. EDT

The property and casualty market has firmed, Wells Fargo Insurance is telling its clients, but a separate Willis Re analysis of June 1 and July 1 reinsurance renewals shows a “highly segmented approach” to pricing, where rate increases are tied to loss activity on accounts rather than a hardening market.

In its P&C Industry Update, Wells Fargo notes that the industry's combined ratio, including both commercial and personal lines, jumped six points from 2010 to 2011. Accordingly, the report says premiums have increased in most lines of coverage.

For property coverage, Wells Fargo says high catastrophe losses in 2011 are driving increases in 2012. While there is still ample capacity, Wells Fargo says coverage “may come at a higher price for some companies, as insurers face pressure on their margins and see catastrophe losses in new areas.”

The firm says it has “consistently seen increases of 10 to 15 percent for the majority of our clients across the country.” While rate reductions are occurring, they “are typically the result of program restructuring or the introduction of new capacity,” Wells Fargo says.

The overall rate increases in the property market may not be driven by what's happening in the reinsurance market though, as Willis Re says in its report that reinsurers are taking a targeted approach to pricing risks, with some buyers with loss-free programs, even in areas of peak exposure, able to obtain risk-adjusted rate reductions.

“The targeted underwriting approach taken by most reinsurers has been welcomed by cedents,” Willis Re says. “They have seen their efforts to manage, analyze and in some cases de-risk their portfolios rewarded in differential pricing.”

The firm adds, “This approach does not support a generalized market hardening to the frustration of some reinsurers” who are struggling with concerns over falling investment income and dwindling reserve releases.

Further suppressing reinsurance-rate increases, Willis Re points to the increase in capital and capacity coming in the form of catastrophe bonds and sidecar capacity for existing reinsurers.

But, Willis Re cautions, “While the influx of capital is clearly welcomed by buyers and has helped stabilize rate increases, underlying concerns remain over the durability of highly fungible capital.” Much of the new capital, Willis Re says, is untested and conditioned by investor reaction to a major catastrophe event.