At the time of writing, this year’s retrocession renewal season is heading to a late close. Early indicators point to a pricing environment of flat to minus 10 percent off rate for loss-free cat retro and cat on direct and facultative programs. There has been significant international catastrophe loss activity in 2010; estimates for these losses are being steadily revised upwards, which has resulted in some lower layers and aggregate covers being hit twice. The impact of New Zealand and Chile earthquakes on programs has sometimes, but not always, led to some price and attachment adjustment. Markets were relieved to be spared the potential losses that could have arisen from the US windstorm activity many predicted.
Buyers have not been engaging in defensive purchasing seen in previous soft markets, while sellers have been very sensitive to price and selective towards clients when deploying capacity. Portfolios that were growing or forecasted to grow often appeared to fare well in pricing.
Some early indicators suggested that the forthcoming release of a new model version by RMS, which predicted increased PMLs, would result in markets holding firm or increasing price. This did not materialize, perhaps as many markets will have already factored in model inadequacies into their assumptions.
There was also some appetite for multi-year cover in the retrocession market, similar to that experienced in some other sectors of the reinsurance industry.
While some markets contracted capacity a little, this was offset by increases from existing and new market participants. There were no significant market entries or exits, though some collateralized capacity did enter the market in the second half of the year. Capacity overall remains fairly consistent as a result.
In the risk excess market, there were no noticeable changes in attachment points, and pricing was driven by exposure. For quota share cover, there was an increase in capacity. This led to an improvement in commissions and overrider terms.