Guy Carpenter’s 2009 World Catastrophe Report Finds Rates Rising as Industry Rides Out Financial Crisis
Guy Carpenter & Company, LLC’s annual survey of the global property catastrophe reinsurance market, World Catastrophe Reinsurance Market 2009, finds reinsurance rates increasing by an average eight percent through the 2009 reinsurance renewals. The report states that the increase was largely a result of the financial crisis and its negative impact on reinsurers’ balance sheets, and exacerbated by Hurricanes Ike and Gustav. The study also concludes that little movement in reinsurance rates should be expected at the January 1, 2010 reinsurance renewal, barring a major property catastrophe or financial set back.
The report provides an overview of 2009 reinsurance rates and examines key trends such as catastrophe bond* issuances, developments in catastrophe modeling, and the broader evolution of the property-catastrophe reinsurance market.
2009 Reinsurance Rates
- Reinsurance rates increased by eight percent on average through the 2009 renewal season, according to the Guy Carpenter World ROL Index, following declines of six percent in 2008 and 10 percent in 2007.
- U.S. increases were between 10 percent and 15 percent, depending on region, exposures, and loss history.
- The upward trend in rates was less pronounced in Europe and Asia, where rates were up by seven percent and two percent, respectively.
- Combined insured losses of USD13.9 billion from Hurricanes Gustav and Ike, along with the global financial crisis, significantly impacted reinsurer balance sheets. According to the Guy Carpenter Global Reinsurance Composite, shareholder equity fell 18 percent, with the effects continuing well into 2009.
- Though the total number of number of catastrophe bonds issued is down from 2008 levels, nine cat bonds were issued in the first half of 2009, generating risk capital of USD1.38 billion.
- A total of USD1.59 billion in cat bonds matured in the second quarter of 2009. To date, matured risk principal for 2009 cat bonds is just over USD2.24 billion, with an additional USD960 million scheduled to mature in the second half of the year.
- Two quarters into 2009, catastrophe bond risk capital outstanding is at mid-year 2007 levels, having fallen by USD779 million (6.5 percent) from the first quarter of 2009 to the second quarter of 2009, from USD12.0 billion to USD11.2 billion, with maturities outnumbering new issuances.
- Hurricane Ike led a number of reinsurers to question the quality of their exposure data, as gaps and flaws in models became more apparent and risk managers struggled to keep pace with damage to their balance sheets.
- Reinsurers may need to broaden their scopes to consider a wider range of factors that could potentially contribute to outsized insured losses, with models just one tool in the broader risk and capital management arsenal.
- Model enhancements, such as GC LiveCatTM and GC ForeCatTM, available through Guy Carpenter’s i-aXsTM platform, can help facilitate risk identification and capital management, augmenting the capabilities of the major catastrophe modeling firms.
Peter Zaffino, President and CEO, Guy Carpenter, says, “The financial crisis profoundly affected the reinsurance industry, though we are seeing some improvement in earnings as the financial markets stabilize. In this challenging environment, organizations that take a disciplined approach to risk and capital management will be well positioned to thrive.”
Chris Klein, Global Head of Business Intelligence, says, “It has been an especially turbulent year across the reinsurance landscape, but the industry has weathered the deepest financial crisis since the Great Depression remarkably well. Balance sheets have begun to improve this year, and despite substantial capital losses, the industry was able to absorb the insured and investment asset losses of 2008. The rebound in alternative sources of capital, such as catastrophe bonds, is another factor that points to continued stabilization.”
* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.