London Market Excess Loss (LMX) & Global Retrocession
April 2011 and prior renewals with energy (particularly, energy liability) experienced exposure paid rate increases of approximately 20 percent. This represented the first opportunity to re-rate since Deep Water Horizon (DWH). Pricing for non-energy classes remained flat but with little downward pressure. Following the Gryphon loss in April, the energy market hardened further. While there are relatively few excess of loss placements renewing at this time, the perception in the market was that rates are likely to harden further where energy related coverage is sought. There has been very little demand for any additional Gulf of Mexico wind limits prior to the wind season, as original rates remained static and insurers maintained or reduced their aggregate. Retro renewals outside the January 1 renewals are rare, but those that did happen paid increases similar to those at January 1 - between 20 percent and 25 percent. Marine industry loss warranty covers tend to attach mid-year and renewed generally at expiring rates. They experienced rate increases following DWH and generally were in excess of any potential loss from Gryphon ‘A’.
EMEA Marine & Energy
There are very few mid-year treaty renewals of any note emanating from Europe. Capacity is plentiful, especially for single territory marine business, where rates have remained ‘flat’ at best.
There has been no real impact from the catastrophes in Japan, Australia and New Zealand on the European market, although this has yet to be properly tested, as the larger clients’ programs generally all renew in January 2012.
It would appear the main issue many Europeans are facing in the short term is preparation surrounding compliance with future Solvency II requirements.
Asia Pacific Marine & Energy
Clearly, the Tohoku earthquake and tsunami colored the market’s approach to Japanese business, where, although no client was able to provide an accurate estimate of its loss, it was assumed that they would be significant.
Cargo excess of loss attracted rate rises of 20 percent to 40 percent, depending on level and circumstances. On the whole, the London market seemed a bit tougher than European (with one major exception) and Asian markets. Rates declined cumulatively since 2002 and some reinsurers took the opportunity to include some rating adjustment. Since April, more accurate estimates have come in suggesting that losses will not be as bad as originally feared. Japanese inland transit policies (which also cover shipments to Free on Board) exclude earthquake and tsunami.
Hull treaties, already underperforming, sustained significant losses during the tsunami. Although most of the pleasure craft and fishing boats (featured frequently on television bulletins) are not insured in the commercial market, there were substantial losses from commercial coastal vessels and some oceangoing hulls. The market gross hull loss is estimated at JPY20 billion, which compares with the Diamond Princess building risk loss of JPY26 billion in 2002.
Most of the business in the open market is excess of loss and, although orders did not come out until after the Tohoku event, rates were not really affected by the Japanese disaster. Korean companies generally reinsure at a much lower level than the Japanese. Most companies experienced losses, leading to rate adjustments.
United States Marine & Energy
A majority of programs covering general marine portfolios renewed with small premium and occasional rate reductions owing to good loss records and significant capacity. On more specialized programs with good records, reductions of 10 percent to 15 percent were achieved. However, those programs impacted by last year’s Deepwater Horizon catastrophe did pay rises commensurate with the magnitude of their losses. These increases generally ranged from between 15 percent to 25 percent.
At April 1, the Tohoku earthquake caused some initial confusion in the market as to its impact on pricing. There was some movement by certain reinsurers towards halting further reductions, but this position in most cases was short lived. Even those programs quoted at reductions were generally over-subscribed, as reinsurers seemed to scramble to try to maintain income when terms were set.
Insurance market conditions were competitive for virtually all classes of marine. Rates were flat to down 5 percent to 10 percent. While under pressure to maintain if not grow their top line revenue, most clients were unable to meet their premium estimates. In light of this, there was greater pressure on reinsurers from clients to offer reduced percentage minimum premiums on excess of loss renewals.
Some clients saw increased shipping activity owing to the recovering economy, which may have had a positive impact on the cargo market. Meanwhile, energy underwriters are adjusting income estimates to reflect the fact that anticipated hardening did not materialize following DWH.
Reinsurance capacity remains abundant and relatively stable in the United States, although there has been some shifting of capacity, with senior staff movement to other carriers
There is a good deal of ongoing dialogue in the market about the impact of RMS v11 model results relative to v9. Many clients are rejecting the results until they better understand why the projected losses are so much higher. Not surprisingly, reinsurers are trying to push the use of v11, although, ironically, the modeled losses for most yacht portfolios have actually declined.
Global Marine & Energy Outlook
The potential marine loss from the Japanese earthquake remains below initial expectations, and at this point in time, that event is unlikely to have a significant impact on ongoing rates outside of Japan.
Many reinsurance writers who purchased retro protection found themselves with two retention losses in the first half, as both the Japanese earthquake and Gryphon ‘A’ likely fell around the attachment point of their covers. This will apply further pressure to their results, placing their 2010 and 2011 financial years in a parlous state. Inevitably, this will encourage the reinsurers to seek further increases at the next January 1 renewal, when there will likely be increased focus on the underlying energy portfolios. Furthermore, there will undoubtedly be added pressure on the marine sector from managements struggling under the weight of the recent spate of property catastrophe losses. They may also be wary of the current negativity surrounding the rating of energy and energy liability business. Barring a catastrophic event and with capacity remaining plentiful, resistance to upward pricing pressure will continue for the foreseeable future.