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By CYRIL TUOHY, managing editor of Risk & Insurance®

July prices for the "working layers" of U.S. casualty and noncatastrophe property reinsurance coverage are generally flat, according to industry experts.

The flat renewal pricing in those particular lines was helped by startups entering the market and the inability of primary insurance companies to raise their rates too much because of the recession, according to Peter C. Hearn, CEO of Willis Re, in a June 30 report to clients on the state of reinsurance pricing.

"Initial sign of recovery in the financial markets and a lack of major underwriting losses in the first two quarters of 2009 have worked in tandem to bring greater stability to the reinsurance market," wrote Hearn.

Jim D'Onofrio, executive vice president and head of reinsurance for Endurance Reinsurance Corp. of America, confirmed the price stability.

"Speaking about U.S. working layer pricing, we've generally seen flat pricing for most casualty and non-CAT property business on the July 1 renewals," he said in an interview Tuesday with Risk & Insurance®.

Casualty and noncatastrophe-exposed property prices have been generally soft over the past several renewal cycles.

Soft prices have left reinsurers with the usual choice. Lower prices or loosen terms and conditions to retain their clients, at the risk of not having enough money to pay a future claim. Or, raise prices and tighten terms and conditions, at the risk of dropping clients who simply can't afford to pay, in effect walking away from business.

DISCIPLINE MAINTAINED

From the standpoint of reinsurers, many have still been able to offer coverage while keeping the business--a strategy known as "maintaining discipline."

"From a reinsurance perspective, I think most companies have been fairly disciplined," said D'Onofrio.

Reinsurance managers itching to raise rates or under pressure to do so from investors have found it difficult to jack up prices on the primary carriers, who in turn are finding it difficult to increase their rates on companies struggling in the recession.

"Small and middle-market businesses, and even large businesses, can't afford increases in their premiums and will shop their program or in some cases not even buy," said D'Onofrio. "On proportional business, we follow the primary carrier rates and are impacted as well, although reinsurance pricing is a little more independent on excess-of loss-treaties."

TERMS FIRM ... FOR HOW LONG?

On the primary and on the reinsurance side, terms and conditions have been holding firm.

"Primary companies have tightened policy language over the past couple of years," D'Onofrio said. "I think most ceding companies understand where their loss exposures come from. They may have been willing to yield a little bit on price, but for the most part, they haven't expanded coverage."

How long primary carriers can continue without "meaningful and universal rate hardening," according to Hearn, is a "point of continuing concern," as investment yields continue falling and companies have run out of reserve releases.

All eyes (and ears) in the reinsurance industry are now on the annual Les Rendez-Vous de Septembre, scheduled for Sept. 4 to 10 in Monte Carlo, where reinsurance buyers and sellers flock to discuss 2010 pricing renewals.

D'Onofrio said he remained optimistic that reinsurance rates would harden in earnest in 2010 as the U.S. economy improves.

July 22, 2009

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