In Canada the January 1, 2010 renewals showed a slight softening of rates. For working layers, much depended on the reinsured’s loss activity. Property Per Risk covers with little or no loss activity averaged reductions of 3 percent to 6 percent. Greater loss activity pushed rates up on average 5 percent to 10 percent. Casualty programs’ working and clash layers were generally flat, again depending on loss activity. If there were significant losses, working layers increased 3 percent to 5 percent. Clash layers were flat to declining 3 percent. Rates for all excess of loss covers were often influenced by whether the anticipated subject premium increased or decreased. Decreasing subject premiums made it more difficult to get rate reductions. There is very little proportional business remaining in Canada. That which was renewed did so with little change to ceding commission terms.
Capacity was broadly available and some reinsurers operated more aggressively, with the Paris Re/Partner Re merger creating some openings on programs as clients reduced their aggregate shares. It has been estimated that an additional USD 2-3 Billion of catastrophe capacity was purchased at the 2010 renewal. This occurred because the changes to RMS’s earthquake model caused an increase in companies’ British Columbia probable maximum loss by 30 percent to 50 percent. This increase in demand, however, did not have a significant impact on pricing in the local market. Cat rates increased from 5 percent to 10 percent for programs with losses and generally declined 3 percent to 6 percent without losses.
Generally, rates were pushed this year to confine the level of oversubscription that has been typical of the market (for Property Per Risk and Cat business) for the past few years. This continues to occur in part because of the continuing trend of foreign-controlled insurers to incorporate some or all of their Canadian Property and Cat exposures within global reinsurance programs controlled by the parent. This practice leaves a preponderance of long tail exposure in the domestic reinsurance market without the potentially desirable and diversifying short tail exposures.
The continuation of the global recession along with a soft pricing environment both provide a flat to diminishing reinsurance market outlook for 2010 and beyond. A small number of catastrophic losses did not have any firming impact on the market. The modeling changes that occurred had some impact on insurers’ willingness to expand or, in some instances, continue to support highly quake-exposed business in Canada’s western-most province, British Columbia.