Pricing declines continued to affect the reinsurance industry in the first quarter of 2008, as soft pricing and the lack of big, expensive catastrophes meant few large claims, according to a quarterly survey of reinsurance buyers done by Willis Group.
"Closing out the first quarter of 2008, it appears that reinsurers are now also confronting an increasingly competitive market for their products," writes Peter Hearn, CEO of Willis Re, in a note to clients.
"Our analysis of the first April renewals has confirmed a continuation, and in some markets acceleration, of the pricing decreases seen across January renewals."
Falling prices, while not so great for carriers and brokers, are more often than not welcomed by buyers who don't have to pay as much premium, or who are finding themselves in a stronger position to renegotiate the terms of their contracts.
The steepest price declines were in the smaller markets as more regional reinsurers came into the marketplace, Hearn said, and some Willis brokers are finding it tough indeed to win accounts as competitors come in with lower offers.
Coverage rates for excess liability coverage in the aviation sector dropped by 5 percent to 7.5 percent, according to the report, titled "Plenty of Capacity, Plenty of Capital."
Coverage rates in the excess liability lines of the marine sector dropped 5 percent to 7.5 percent, with some rates for local accounts in single territories dropping by as much as 15 percent to 20 percent.
Industry analysts say they expect softening rates to affect reinsurers' earnings in 2008 and the only question--barring a violent hurricane season or other event capable of inflicting catastrophic losses--remains to what extent.
Reinsurers are coming off two strong years. The industry has been able to replenish its capital base after it was decimated by the expenses associated with the 2005 hurricane season.
The group of 20 U.S. property/casualty reinsurers wrote $22.7 billion of net premiums during the 2007 calendar year, a decrease of $3.1 billion over the same period in 2006, according to the Reinsurance Association of America. The combined ratio for the group of reinsurers was 94.7 percent, a slight improvement over the 94.9 percent reported in 2006.
Policyholder surplus at the end of last year was $75.9 billion, up slightly from the $74.5 billion reported at the end of 2006.
June 1, 2008
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