April 12th, 2012

April 1, 2012, Reinsurance Renewals: Japan Property Lines

Posted at 7:56 AM ET


Significant price increases were the norm. Post-renewal increases in Tohoku loss estimates meant that some 2011 pricing was increased during the year as escalator clauses took effect. The average price of Japanese earthquake excess of loss capacity has practically doubled since the 2010 renewal. Total pro rata capacity ceded declined due to planned reductions and was partially made up for by increased excess of loss.

Proportional Treaty

An early start was made by cedents who were keen to secure capacity in good time. Reasonable concessions were offered by cedents on commissions, which were reduced by between zero and five points. The degree of these concessions was largely dependent on the position adopted in 2011 where, dependent on the state of renewal at March 11, 2011, some cedents had reduced but others had not. Cedents also offered event limit reductions by 10 percent to 20 percent, and in those few cases where treaties had historically been placed on a cession limit basis, event limits were newly introduced.

Excess of Loss Treaty

Price increases were significant for the second year in a row. Increases of 10 percent to 40 percent on average in 2012 came on top of increases in 2011 to result in pricing that is now nearly double that of 2010.

4_Significant Catastrophic Losses

There was a large variation in price movements, dependent on:

  • Loss experience: within the loss, pricing was sensitive to loss movement
  • Level: in an example of one of the wider themes of this renewal, low rate on line business attracted significant increases, despite loss-free history


Despite another loss-free year for the Japanese windstorm market, buyers were faced with adverse market conditions and prices rose. As is usual in this market, reinsurer capacity was available but tight - there was some additional capacity tempted into the market as a result of the increases in price. Prices are now at a level equivalent to that last seen in the mid 1990s.

Within each program the lower rate on line layers attracted the largest increases. In the absence of loss activity, this feature was the major driver of differentiation in price movement for 2012. The overall risk-adjusted price increase average lay between 14 percent and 15 percent, but within this overall increase, price changes were:

  • Low layers: up 10 percent to up 15 percent
  • Mid to high layers: up 12.5 percent to up 20 percent

Overall, companies looked to maintain or increase purchased capacity within budgetary constraints that were stretched by market price demands. Reinsurer capacity was available but tight.

Property Per Risk

Thailand flood losses and their impact were the dominating narrative of the fire pro rata and excess of loss renewal. Besides a limited number of cases, pro rata was not replaced by excess of loss. In fact, the former was generally fully placed, while excess of loss capacity was extremely tight and prices rose sharply. For the fire (excluding earthquake) pro rata market, conditions were difficult but not impossible, as long as cedents were willing to address the issues appropriately. Some new capacity was keen to enter this market.

The approach of reinsurers was diverse, especially regarding the approach to worldwide catastrophe cover in fire treaties. The tough stance adopted by some markets caused them to lose large amounts of business. New providers as well as existing players looking for growth were willing to take up the spare capacity on pro rata treaties with attractive terms.

Excess of loss pricing increased sharply, but the increases described a large range. At the lower end, pricing was driven by loss activity in Thailand and thus increases were dependant on experience. At the higher end, minimum rate on line considerations pushed up pricing.

Existing reinsurers were generally looking to renew, subject to price, though some were restricted by natural catastrophe limitations and others were restricted through their desire to cut back on low rate on line layers. There was some new capacity, but no low rate on line layer was easily placed.

Overseas/Japanese Insurance Abroad (JIA) Catastrophe Excess of Loss Cover

Heavy losses in Thailand caused all buyers to revisit their overseas strategy. Perception of risk was shaken up by the unexpectedly large nature of the Thailand flood losses. Those covers that existed were generally small in comparison to the losses. These losses and the subsequent changes in per risk protections that ensued resulted in a significant increase in the amount of overseas (excluding Japan) cat purchased.

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