January 3rd, 2011

2011 Reinsurance Renewal Rates: Global Credit, Bond and Political Risk

Posted at 1:00 AM ET

141x141jan1thumb50Loss experience defined the credit, bond and political risk reinsurance renewal, with loss-free programs securing significant rate declines and those affected seeing steep increases. Reinsurance rates on loss-free working layers fell 20 percent on average, while those with losses saw increases of 15 percent to 25 percent, depending on severity. Rate increases were slight for high-risk excess programs if there was underlying activity and flat where there was none.

Primary market rates fell 5 percent to 10 percent in the credit, bond and political risk space, as market conditions (and loss ratios) have improved faster than even the most optimistic of forecasts. Though the number of insolvencies rose in 2010, there was a marked improvement in the industry, and 2011 is likely to be better than 2010, much better than 2009 and significantly better than 2008 (the year in which the global financial catastrophe struck).

Frequency was a greater challenge than severity in 2010, as loss activity generally did not reach attachment levels. Credit reinsurance exposure increased 25 percent to 30 percent year over year, with bond up 5 percent and political risk down 10 percent.

There were no significant changes to reinsurance structure for credit, bond and political risk treaties. Capacity was up across the board. Though the increase was only slight for political risk, there was a noticeable increase for bond risk and an even greater gain for credit risk.

For proportional treaties, profitable programs were up 10 percent because of a combination of ceding and profit commissions.

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