--By STEVE TUCKEY
Insurance executives may have shied away from pricing talk on the day of the Sept. 11, 2001 tragedy, but eventually they witnessed a market hardening and significant influx of new capital not surprising in the aftermath of the $40 billion insured loss disaster.
Today, the question lingering is what kind of effect the $60 billion in insured losses incurred in the first half of this year will have on the market. Munich Re estimated 2011 first-half losses are five times the average for the period. Needless to say this question will spark much discussion at the 2011 gathering of reinsurers (Rendez Vous de Septembre) in early September in Monte Carlo, Monaco.
Jamie Veghte, head of global reinsurance with the XL Group, said the price hikes estimated between 6.5 percent and 12 percent for property/catastrophe coverage that were seen in the June 1 renewals, which is heavily centered on Florida coverage, may or may not be sustained depending on what losses the June 1 to Nov. 30 hurricane season brings.
"But the long-tail markets continue to be very challenging in lines such as general liability, directors' and officers' and medical malpractice," Veghte said. "We continue to find pockets of opportunity there, but overall our casualty portfolio is materially lower than it was in 2005.
"The industry has been living on the release of prior year reserves for the past three years. Until that dries up, I think things are going to remain challenging for some time," he said.
Meantime, in February, Risk Management Solutions released a new version of its catastrophe modeling software that could prove to be a game-changer when it comes to market pricing, said Lara Mowery, global head of property specialty for New York-based reinsurance broker Guy Carpenter.
"In particular, analysis of the changes driving the new RMS results will influence the effect the model changes have on reinsurance pricing, program structures, and ultimately primary rates as the market finds its new equilibrium," she said.
Chris O'Kane, founder and chief executive officer of Aspen Insurance Holdings, said at an industry event earlier this summer it could be a year before the full effect of RMS Version 11 can be fully quantified. He said one modeling consultant noted only one of his dozen reinsurance clients has incorporated the changes into their pricing. "I think the consensus has grown that doing nothing regarding the model change is not an option," O'Kane said.
Loss estimates from the March 11 Tohoku earthquake in Japan, now ranging from $20 billion to $34 billion, still remain difficult to pin down. O'Kane noted that no model predicted a magnitude 9.0 earthquake for that area, and as a result the probability for a comparable event in Tokyo over the next couple of decades has risen.
While the commercial insurance business may be better priced now compared with the beginning of the year, the question remains whether it will be sufficient to meet the greater understanding of what the risks are now, O'Kane said. On a more hopeful note, he sees the current premium increases as raising the baseline, rather than the temporary spikes that will recede like in the past when the threats seemed to also.
In the past few months, reinsurers such as Partner Re, Montpelier Re and Endurance Specialty Holdings have dipped their toes in the capital markets raising sums ranging from $150 million to $325 million to take advantage of rising rates.
But so far there has been nothing like the activity following Sept. 11, 2001--and Hurricane Katrina four years later--to indicate any historic pricing change in the making, Fitch Ratings analyst Greg Dickerson said.
With both former President Bush and President Obama expected in New York City for the 10th anniversary of the terrorist attacks on the World Trade Center towers, surely the ceremonial event will be on the minds of Rendez-Vous participants in a couple weeks (Sept. 9-16).
"I expect discussion in Monte Carlo will be dominated by the same issues as in previous years--market and anticipated trading conditions," Veghte said.
September 1, 2011
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