January 28th, 2009

1/1 Increases for U.S. Surety

Posted at 1:00 AM ET

Scott MacColl, Senior Vice President

Based on surety programs having comparable year-over-year structures, cedents realized flat to increasing prices at the January 1, 2009 renewal. Half of layers renewed at rates close to expiring and 39 percent of layers experienced increases. A small percentage of layers achieved nominal decreases, primarily attributed to the reallocation of premium across program layers. On average, the cost to transfer risk increased by 4.1 percent. Actual and anticipated changes in exposure, program size and historical results influenced year-over-year price differences for specific programs.

Click chart for a larger version

Click chart for a larger version

Smaller and mid-sized programs with favorable loss histories for the past three or more years generally experienced flat rates or nominal year-over-year changes and had no trouble finding capacity. Rates moved up for layers with increases in exposure (either actual or anticipated) or where there was loss activity over the past few years. Larger programs requiring substantial limits were impacted negatively due to reductions in market capacity and reinsurers concerns with aggregations of exposure across surety clients. Larger programs and catastrophe layers were affected more severely by macroeconomic conditions and reinsurers’ increased cost of capital.

Click chart for a larger version

Click chart for a larger version

Capacity is likely to continue to tighten in 2009, and upward pressure on pricing likely will not abate until the financial markets begin to stabilize. Relief, understandably, will come from an easing of credit markets and an increase in capacity, which is dependent on the state of global financial markets and favorable industry results.

Additional Contributors:

  • Eric van Elkan, Managing Director
  • Ken Farricker, Senior Vice President
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