The April 1 renewal is not a major one for the Australia/New Zealand region, as most renewals are divided between January 1 and July 1. It has proven to be more significant this year, however, as a result of the natural catastrophe activity that has impacted the market over the past twelve months. During this time there have been seven events that have, on each occasion, resulted in insured losses in excess of USD1 billion. A large proportion of these losses have been passed on to reinsurers.
In Australia the most significant event has been the flooding that predominantly affected the state of Queensland. Separate events in December 2010 and January 2011 resulted in substantial insured and economic losses. These events have once again led to considerable debate regarding flood as a peril, with coverage definitions varying greatly between insurers. In light of these disasters, the Assistant Treasurer recently set up the National Disasters Insurance Review (NDIR), which is due to report back to the Government by the end of 2011.
In New Zealand, the city of Christchurch was shaken by a devastating 7.0Mw earthquake in September 2010 that resulted in insured losses of approximately USD4 billion. An aftershock measuring 6.3Mw struck on February 22, 2011. This time the epicenter was much closer to the city and the damage sustained was much greater. With close to 200 fatalities, this second earthquake also caused significantly more building damage. Early estimates put the insured loss as high as USD12 billion.
With the majority of reinsurance programs having been affected by multiple events over the past year, reinsurers have been signaling double digit-price increases. They also have been looking for cedents to again raise their catastrophe retentions - this was also a theme at January 1. The market norm of pre-paid reinstatements was also coming under pressure, especially at the lower end of programs.
For loss-affected programs renewing at April 1 this translated into rate increases on a program-wide basis. However, the introduction of annual aggregate deductibles and higher retentions helped keep the increases at a reasonable level. While capacity remained more than adequate, reinsurers’ approaches to the renewal were largely uniform as they sought to achieve a better return for the capacity they were deploying.
The much larger June 1/July 1 renewal season will be a better guide as to how much the frequency and severity of natural catastrophe events over the past year have moved the market.