Reinsurance rates in Korea were generally up 5 percent to 25 percent year over year on a risk-adjusted basis at the April 1, 2012, reinsurance renewal. Even though Korean catastrophe treaties were generally clean over the past 12 months, rates increased because of a general market hardening following the large number of insured losses across Asia. Heightened scrutiny of interests abroad also contributed to an upward movement in catastrophe pricing for Korean treaties.
Because of heavy rains at the end of July 2011, a number of Korean catastrophe excess of loss treaties suffered small losses during the course of the 2011 underwriting year. For the most part, however, these losses were limited to the first layers of the excess of loss treaties, which on the whole, remained profitable. Furthermore, there were no losses reported to Korean catastrophe excess of loss treaties from events occurring in other loss-affected territories, despite substantial Korean interests in Thailand and Japan.
Treaty structures tended to remain unchanged from last year. Limits and deductibles were largely maintained. A small number of cedents purchased additional catastrophe cover - between KRW20 billion and KRW30 billion - at the tops of their existing programs. In some cases additional restrictions were placed on contingent business interruption coverage and protection for non-Korean interests abroad.
At the April 1, 2012, renewal, the lead reinsurers of several treaties changed. Price and level of protection were the primary drivers. While most quoting markets applied pressure for a restriction on coverage for interests abroad, some existing lead reinsurers preferred to try to exclude such risks from being protected under treaties completely, resulting in changes to the appointed lead market.
Property Risk Excess of Loss
Loss-free property per risk treaty reinsurance rates in Korea were largely stable year over year. Pricing increased by approximately 20 percent to 30 percent, however, for programs experiencing significant losses in 2011.
In contrast to the property-catastrophe treaties, there was very little change in appointed lead reinsurers across the per risk excess of loss programs. The only exceptions to this were, again, where interests abroad posed difficulties for the incumbent lead reinsurer. Treaty structures were also largely maintained with some small changes to programs with combined risk/event protection in the upper layers.
Restrictions on coverage for contingent business interruption were introduced as standard across the majority of risk excess treaties, as it was for property catastrophe treaties. For some programs, the amount of protection for non-Korean interests abroad was also reduced.
Property Surplus Treaties
The majority of Korean property proportional treaties already had event limits imposed prior to the 2011 catastrophic events. In general, these event limits were maintained at the expiring level at renewal. Capacity and commission structures were also largely unchanged.
Liability Excess of Loss
There were few changes to structure, pricing and lead reinsurers for liability excess of loss programs.