April 28th, 2009

Japan 4/1 Reinsurance Renewal: Earthquake

Posted at 12:30 AM ET

Ed Fenton, Managing Director
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Earthquake Pro Rata

Capacity Purchased, Pricing, and Aggregate Movements

Probable maximum loss (PML) ceded by the market declined only slightly for the second year in a row at the April 1, 2009 reinsurance renewal in Japan. Some treaty restructuring caused capacity to increase modestly, resulting in the growth in “air” capacity (i.e., the difference between theoretical available capacity and actual capacity ceded). Rate on line (ROL) grew by approximately 2.5 percent. Commissions were unchanged.

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The largest aggregate exposure in Japan is now found in Zone 6, with the traditional peak (Zone 5) not far behind. Growth continues to be experienced in other zones, particularly Zone 8 and Zone 11.

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Terms and Conditions

There was a further move to separate fire and earthquake in treaties, as more capacity switched to placement on a standalone basis for the two perils. And, the inclusion of event limits continued. Approximately 63 percent of all capacity is now purchased subject to an event limit, up from 57 percent in 2008.

Earthquake Excess of Loss

Capacity Purchased and Pricing

Capacity purchased by non-life companies grew noticeably, driven by an increase in the amount of combined cover purchased and a reduction in existing placements’ co-reinsurance shares.

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Market ROL increased by 3.9 percent on average, though risk-adjusted prices were up 2.5 percent to 7.5 percent, with a few outliers reflective of specific circumstances.

Earthquake Fire Expense Insurance Excess of Loss

Capacity Purchased and Pricing

The standalone earthquake fire expense insurance (EFEI) market shrunk for the sixth year in a row. More coverage was incorporated into other covers, including earthquake/EFEI combined placements and programs with combined windstorm and earthquake lines coverage.

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Pricing varied. More aggressive buyers were able to secure risk-adjusted reductions (usually in cases where ROL was held unchanged against increased exposures), with pricing generally increasing by approximately 2.7 percent. Risk-adjusted ROLs ranged from -2.5 percent to 5 percent.

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