Reinsurance rates were flat at the January 1, 2012, renewal for the international accident reinsurance market. This is expected to continue through 2012, coupled with continued steady performance and the possibility of increased M&A activity. Subject base exposure increased 5 percent year over year, driven by underlying sales growth and price inflation on a macro level. As pricing becomes more favorable - especially at higher levels, for example, ROLs of 1 percent to 1.5 percent - the trend is to buy more. Vertical retentions are gaining popularity as a way to maximize the use of capacity at minimum ROL.
In the primary international insurance market, rates for first-tier insureds were flat to down 5 percent as a result of increasing capacity and low loss activity. New players are still entering the market, thus bringing capacity, and underwriting agencies are obtaining paper to exploit specific market segments. The market will likely continue in 2012 as it did in 2011.
In the Americas rates were flat, and carriers posted a good performance in 2011. Increased M&A is a possibility for 2012.
Worldwide, catastrophe accident and health carriers did not sustain losses as a result of the major catastrophes of 2011: the Christchurch earthquakes, Japanese tsunami, flooding in Australia and tornadoes in the United States. For the most part, subject base exposure has increased largely because of business expansion rather than underlying price increases.
Regulatory developments were most noticeable in the Australia and New Zealand life insurance markets, where regulators are attempting to bring capital charges for pandemic exposure. This could lead to an increase in demand for reinsurance, as it would off set the charge.
In the United Kingdom the Japanese tsunami resulted in only one market loss of around USD40 million. Risk was well spread, with little true impact. Subject base premium exposure relative to premium was up 5 percent, based on underlying sales growth. In the Americas, subject base exposure was up 5 percent because of underlying sales growth and macro price inflation.
Loss-free catastrophe excess of loss programs were flat to down 5 percent internationally in the life, accident and health sector, with loss-hit programs, which were rare, up 5 percent to 10 percent. With prices remaining low, many cedents took the opportunity to secure additional cover. Others are looking to move to a single stretch, as reinsurers generally participate across programs anyway.
Rates were down in China for loss-free catastrophe adjustable programs. This was mainly due to 10 percent to 100 percent increases in aggregates, resulting in an average ROL increase of 10 percent.
In the United Kingdom loss-free programs were flat to down 5 percent, and no programs were hit by losses. Retentions were flat, with programs generally renewing at expiring terms.
For catastrophe excess of loss programs in the Americas, ROL was flat to down 2 percent on average for loss-free programs. Layers experiencing losses had ROL increases of 5 percent to 10 percent. Even without an impact from the disasters in Japan, it was evident that reinsurers were unwilling to continue to cut rates, as margins are squeezed further by losses and the increased price of retrocession.
Worldwide capacity of USD550 million was available at reasonable ROLs.
In the United Kingdom and Americas working layers pricing was flat, with risk-adjusted reductions for loss-free programs of up to 5 percent. For loss-affected programs, pricing followed exposure. High-risk excess programs experienced downward pressure on reinsurance rates as capacity was increased because of low exposure and high historical profitability. Multi-year contracts are increasingly being considered when conditions are favorable, but they have not gained significant traction yet.
Internationally, both working layers and high risk excess program rates were flat year over year if they were not affected by losses.
In China local companies purchased per person risk excess and catastrophe excess at very low attachment points relative to the aggregate 2011 result, with a greater number of single-person losses. As a result, some renewal quotes were up 100 percent year over year.
For proportional treaty in the United Kingdom, continued poor performance led to an increased desire to buy reinsurance cover. Carriers accepted aggregate deductibles within treaties to increase profit potential and reinsurer renewal. For this reason, cedents also lowered their retentions. Capacity was flat and continues to remain minimal.
To conclude, some savings were achieved in low natural catastrophe and terror “hot spot” territories. Conversely, clients with losses or heavier aforementioned exposure were flat with some increase in prices. Overall capacity is plentiful at terms equal to or greater than their peers.