U.S. CAT Reinsurance Renewals Down 5 percent to 15 percent
By CYRIL TUOHY, managing editor of Risk & Insurance®
Double-digit percentage increases in reinsurance capacity and the lack of budget-busting catastrophes last year helped U.S.-based renewal pricing decline by as much as 15 percent, according to a pair of reinsurance reports.
For insurers, which transfer risks off their books to reinsurers and are still facing the hardships of a long recession, soft pricing and an uncertain investment environment, the news could not have come at a better time.
"Rate decreases, adjusted for changes in exposures, for the peak zones of U.S. hurricane and U.S. earthquake ranged from minus 5 percent tominus 15 percent," wrote the authors of the executive summary of a report titled "Reinsurance Market Outlook: Remarkable Recovery," issued in January by Aon Benfield.
A separate reinsurance renewal report published Dec. 31 by Willis Re found almost identical price declines for U.S.-based property-catastrophe programs.
"Due to absence of major earthquake activity and reduction in loss estimates from updated catastrophe modes, residential and commercial pricing for earthquake programs was down 10 percent to 15 percent," the report authors wrote.
Factors influencing reinsurance supply include healthy capital positions and reasonable profits and investment returns, according to the Aon Benfield report.
Factors influencing global reinsurance demand, which is likely to grow at a rate in the low single digits, include a focus on enterprise risk management (ERM), conservative investment strategies, competitive pricing and uncertainty around capital requirements following the financial crisis of the last 18 months.
Despite the price declines, Peter C. Hearn, CEO of Willis Re, in a preface to the report, said that reinsurers continue to maintain "a responsible underwriting attitude" toward clients and capital suppliers.
"This disciplined rating approach is underpinned by reinsurer concern that the excellent 2009 underwriting results are not so much due to attractive pricing, but to a below-average pattern of natural catastrophe and man-made losses," said Hearn.
As far as the lack of massive losses in 2009, findings issued last month by Munich Re and Aon Benfield are in agreement. Aon Benfield counted $58 billion in total economic losses and $20 billion in insured losses from catastrophic events; Munich Re counted $50 billion in total economic losses and $22 billion in insured losses. In 2008, the comparable figures were $200 billion and $50 billion, respectively.
Last year, no single event in 2009 caused greater than $5 billion in insured losses. Windstorm Klaus, which affected mainly France, Spain and Italy in January 2009, came closest at an estimated $3.3 billion.
January 19, 2010
Copyright 2010© LRP Publications