The July 1, 2011 reinsurance renewals revealed a market that continues to be in transition, according to Guy Carpenter & Company.
In the first quarter of 2011, the reinsurance sector’s dedicated capital position fell by 4.4 percent to about USD165 billion. In the second quarter, reinsurance capital remained essentially flat and moderately down year-to-date. While the global catastrophe losses of 2011 and the version 11 release of Risk Management Solutions, Inc.’s catastrophe model (RMS v11) have impacted reinsurers’ view of risk, the longer-term implications remain to be seen. This will come into sharper focus when recent event losses are fully realized and the industry reaches consensus on the integration of the model changes.
David Flandro, Global Head of Business Intelligence, stated, “How the reinsurance sector’s capital position develops over the remainder of the year is heavily dependent on large loss experience, which will be influenced by the hurricane season. A light hurricane season with no significant landfalls could enable reinsurance capital to resume growth, while a heavy season with at least one significant landfall could mitigate growth or potentially result in an impairment of capital for 2011.”
Bill Kennedy, CEO of Global Analytics and Advisory, added, “Reinsurers are carefully evaluating where to deploy their capacity in a transitional market. Looking ahead, insurers’ ability to provide detailed reasoning for their own assessment of their portfolios, as well as reinsurers solidifying their position on metrics for deploying capacity, will be key factors leading to the January 1, 2012 renewal season.”
Lara Mowery, Global Head of Property Specialty, added, “There have been significant global occurrences impacting the property sector in 2011. Both insurers and reinsurers face a significant amount of work between now and the January 1, 2012 renewals as companies solidify their assessment of the impact on capital from the global losses and model version changes. In particular, analysis of the changes driving the new RMS results will influence the effect that the model changes have on reinsurance pricing, program structures and, ultimately, primary rates as the market finds its new equilibrium.”