An overview of reinsurance rates reveals a picture of a generally softening market on an overall basis, with ample reinsurer capacity available for most lines. But beneath this generality lies a range of experiences for individual reinsurance buyers, according to the class of business, their own loss record and the territorial scope. In many cases, reinsurance purchasing strategies in a softening market were one of the few places buyers could turn to mitigate the effect of soft conditions in original markets.
As is evident in the regional breakout below, the United Kingdom, Europe and the United States all experienced decreases in risk-adjusted rate on line.
Property Cat rates were reduced in most territories, with exceptions only for those
buyers affected by loss in 2010. The amount of reduction available for large programs
in the major markets was generally limited to the single digit percentage range
though, as in past soft market renewals, buyers with smaller capacity requirements,
excellent records, or outside of key zones were able to achieve greater reductions.
Losses from earthquakes in New Zealand, Chile, Australia, and those resulting from
Xynthia in Europe, floods in Central Europe, winter freezes in Scandinavia and others,
caused price increase in some cases, but often only on those layers affected. There was not any broad regional hardening as the result of any loss activity; so buyers in countries neighboring those affected by loss were not themselves affected. In the US, there was little restructuring activity, but in international markets, buyers were willing to turn to restructure or re-layer in order to help them achieve their price goals. At the quoting stage there appeared to be a resignation amongst reinsurers to the fact that ultimate firm order pricing would be down, and this was reflected in the fact that the average 2011 quote was relatively lower than in 2010.
The perception of a soft market is often the catalyst for buyers and their brokers to consider the chance to fix price and capacity for more than the standard annual period, and in response there was increased interest in multi year arrangements. This interest was well publicized in the trade press in the period leading up to renewal. Reinsurer response to multi-year offerings is very diverse, but certain markets have an appetite for such deals, and there was growth in the amount placed on a multi-year basis.
Property per risk excess of loss and pro rata renewals generally saw declining rates, moderated by individual results. Capacity was sufficient.
The property retro market is not such an important driver of the reinsurance market as it was in former years. In a late renewal typical of this market, rates were flat to down for loss-free accounts. Increases in some 2010 losses, especially the New Zealand earthquake, happened very late in the season and generated further uncertainty into end of season price negotiations.
It is hard to generalize about as wide ranging a sector of the market as casualty lines, but as in property there was a generally softening trend in loss free lines. But unlike property there were more individual lines where poor results have resulted in flat or even upward pressure in the rating environment. Examples of classes with increasing rates were motor and general third party liability (GTPL) in certain European territories and working level covers for US workers compensation accident (WCA). Conditions in original markets are also mixed, and cedents had to use a variety of strategies, including retention and co-participation management as well as reinsurance price reduction, to protect their own margins.
Accident and Health
Personal accident rates were down and capacity was sufficient on most renewals. There was evidence that cedents looked to enhance coverage terms to drive value if significant rate reductions were proving hard to achieve. Nuclear, biological and chemical (NBC) only top layers were used as a technique to reduce pricing in some cases. Medical expenses rates were increased, but cedents had to deal with larger increases on reinsurance treaties than it was possible for them to achieve in the primary market. The accident and health sector remains of interest to capital markets and there was further activity in this area during 2010.
The marine market saw a range of rate experiences: international hull, war and liability rates were flat, and cargo was down. The effect of the Deepwater Horizon loss was to drive prices for energy business significantly, up 15 percent to 35 percent, though these increases were not as great as had been predicted by many commentators prior to the renewal season.
The aviation market endured another year of indifferent results, with several significant losses leading to poor results for insurers. Nevertheless capacity remains ample, and rate reductions were still available for many buyers, dependent on individual results.
The Surety, Credit and Bond markets saw a generally softening trend, with individual
experience the guide to renewal pricing.