December 22nd, 2009

2009 Top Stories: Reinsurance Renewals

Posted at 12:30 AM ET

With 2009 coming to a close, this week we’re taking a look at the most popular stories of the year.

Cats and Credit Push Prices Up: Reinsurance rate increases were moderate on average at the January 1, 2009 renewal. The Guy Carpenter World Rate on Line (ROL) Index rose 8 percent, in response to the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record. The degree to which prices increased was tempered by large capital positions at the beginning of 2008, enabling carriers to absorb the year’s losses, but this is where the generalizations end. Loss history, geography, and line of business led to wide differences in pricing. Expectations of another above-average storm year and the uncertainty surrounding the credit crisis underscore the need for continued capital management discipline in the coming year.

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Prop-Cat Reinsurance Rate Increases Steady at July 1 Renewal: Property-catastrophe reinsurance rate increases were steady at the July 1, 2009 renewal. In the United States and Latin America, capacity was sufficient to meet demand. U.S. property-catastrophe reinsurance rates increased 15 percent year-over-year, in line with the trend from January to June. In Latin America, preliminary data varied by country, but upward pressure on pricing was offset by supply and local market competition to keep reinsurance rate increases contained. For the marine sector, rates were up 5 percent to 10 percent, based mostly on loss history and catastrophe exposure. With four major renewal periods covered this year, a sense of calm has emerged. The general reinsurance market is tepid, with a few hotspots based on region- or program-specific factors.

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Florida Renewal Up 15%, Follows the Global Trend: Property-catastrophe reinsurance rates increased by 15 percent at the Florida-centric June 1, 2009 renewal — compared to a 15 percent decline a year ago. Capacity was more limited than in recent years — however, still adequate to complete renewals. Though the ultimate result was higher than the 10 percent to 14 percent change for U.S. national reinsurers at April 1, 2009, the intricacies of the Florida market render it directionally consistent with the overall rate trend for this year. Constraints on capital have pushed risk-transfer pricing higher, but shortages were not so severe that rates spiked as they did in 2006.

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Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal: Reinsurance rates continued to increase for the U.S. property-catastrophe reinsurance market at the April 1, 2009 renewal, extending the trend that began at the beginning of the year. National programs were up 10 percent to 14 percent on a risk-adjusted basis, with those in the Northeast seeing 6 percent to 8 percent increases. This compares to a reinsurance rate increase of 11 percent on average at the January 1, 2009 renewal.

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International Casualty Update: January 1, 2009 Renewal: Casualty treaty reinsurance pricing outside the United States and UK was unchanged in most areas, though there were pockets where prices rose - despite the shrinking of many cedents’ premium incomes. Programs in specific classes (such as Financial Institution) or with deteriorating reinsurance results sustained the highest price hikes. Cedents did have access to an increasingly diversified group of reinsurance markets, putting pressure on established traditional reinsurers. Many are beginning to turn over their reinsurance panels, and the London and European branches of Bermudian reinsurers are the primary beneficiaries - at the expense of the traditional European reinsurers.

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