In the credit and bond primary market, rates are flat, but these are not rate-driven classes. In political risk and especially structured credit, rates are under considerable upwards pressure for obvious reasons. The outlook for 2012 is turbulent, given the prevailing macroeconomic uncertainty and instability around the world. Loss ratios are quite likely to increase.
In the reinsurance market, material loss activity was much lower than expected. In credit, exposure climbed 5 percent, with rate on exposure down 23 percent. Bond is predominantly proportionally reinsured, therefore reinsurance costs do not directly reflect loss activity, but excess of loss layers with loss activity were up by 15 percent to 30 percent. There was little regulatory development, but sanctions clauses are increasingly becoming an issue.
Reinsurance rates for loss-free per risk excess of loss working layer programs fell 20 percent at the January 1, 2012, renewal, with high excess program rates flat at the higher end. The only salient change to program structures was a trend toward slight retention increases. Market capacity has not increased year over year, but there is still too much. While supply was insufficient for political risk, there was over-supply for credit and bond.
For proportional treaty, carriers are generally retaining more risk. In credit and bond, this is because of under-utilized capital; while for political risk, it is because of insufficient supply by reinsurers. All ceding commissions increased by a maximum of 10 percent.