At the January 1, 2012, reinsurance renewal in Africa, capacity changes pushed rates higher despite a benign catastrophe year. Pricing for per risk excess of loss working layer programs increased 10 percent to 15 percent, and rates for high risk excess programs were flat to up 5 percent.
Competition continues to drive lower original rates. Most lines have an over-supply of capacity, and this, coupled with the aggressive growth targets of the large composites, continues downward pressure. It is further compounded by new underwriting managers (managing general agents) seeking to establish a market position.
While the M&A market has been quiet, a consolidation has occurred at the underwriting manager level. Capacity and license providers continue to pick up agencies from each other and to establish new entities.
The outlook for 2012 is straightforward: business as usual. With Solvency II coming, there may be some M&A activity, and smaller carriers may be subject to closer scrutiny. The large composites, however, will likely continue to seek growth opportunities by expanding into new lines of business and new regions while continuing to pursue the acquisition of agencies. A benign loss year led to risk-adjusted rate increases of 5 percent to 10 percent, largely driven by changes in capacity. London, in particular, is not writing high-level catastrophe layers at low ROLs. In fact, the London market sought 50 percent to 100 percent increase to top-level catastrophe programs, which effectively prices them out of the market. Some reinsurers, predominantly Lloyd’s, actively pulled capacity from South Africa as return periods are deemed to be less favorable than other non-correlating markets.
Per risk excess of loss working layer programs sustained rate increases of 10 percent to 15 percent, while high risk excess program rates were flat to up 5 percent. For proportional treaty, in many cases, clients ceded more risk as a result of the favorable proportional terms still existing. This has provided earnings stability in some instances. Ceding commissions remained favorable in local markets, with reinsurance margins staying low. High levels of competition in the local market protect cedents in Africa from global market factors, to a large degree. Proportional capacity remained stable, with some re-entry and no notable withdrawals.