In contrast to 2010, there were no meaningful natural catastrophe losses for 2011 in Central and Eastern Europe (CEE); and, therefore, they did not impact pricing. Catastrophe excess of loss rates on line in the region were flat to down 5 percent for loss-free programs at the January 1, 2012, renewal on an exposure-adjusted basis. Primary insurance rates/premiums fell slightly due to competition and the current economic climate. Pricing is expected to remain flat in 2012.
On the regulatory front, Solvency II has had comparatively little impact in the region so far. Foreign-owned group companies have led the way with new requirements thus far with only a relatively small amount of local domestic insurers reacting. On the other hand, the EU’s Fifth Directive affected motor third-party liability with the implementation of higher domestic limits requiring a greater reinsurance capacity.
The structural changes of note in the CEE region were mainly among the Romanian companies where increased capacity was purchased due to higher levels of earthquake exposure. These increased exposures followed the changes in the law regarding the Romanian Natural Catastrophe Insurance Scheme for compulsory insurance on dwellings in the country.
Overall, the CEE region’s total capacity is estimated to be approximately EUR3 billion with EUR500 million to EUR1 billion more still available. The Lloyd’s market generally pulled back from the region in 2012 due to minimum rates on line, especially on top layers. One Lloyd’s of London syndicate withdrew from the region entirely.
The new RMS v11 model for earthquake and wind did have some impact on pricing at the January 1 renewal. In particular, wind probable maximum losses were comparatively higher on the lower return periods. This was balanced by the larger European reinsurers offering flat renewal on profitable lines.
Per risk excess of loss working layer programs in the CEE region were down around 10 percent at renewal. In the high risk excess market, pricing was very competitive and driven by burning cost rather than by exposure.
In the proportional treaty space, risk retention held steady while capacity generally increased.
M&A activity slowed during 2011. However, there is also one or two of the larger group companies still looking for acquisitions. There are still a small number of independent companies seeking sale.