With regional renewals dominating Guy Carpenter’s renewal activity at April 1, 2012, there was a wide range of risk adjusted price change with the average in line with January 1 renewals. The renewal has been late and data is still being analyzed, however, similar to the January renewals, results depended significantly on individual company characteristics.
RMS and Global Catastrophes - The U.S. Impact One Year Later
At April 1, 2011, two events had a significant impact on U.S. renewals: the introduction of the RMS RiskLink v11 U.S. Hurricane model on February 28, 2011 and the Tohoku earthquake in Japan on March 11. Both events came after many reinsurance renewals had already been quoted and while firm orders were being set. As a result, there were still many questions regarding the implications for pricing and capacity. Depending on how far renewals had proceeded, as well as areas of exposure, pricing outcomes varied considerably on April 1, 2011. Some renewals that already had firm orders were less impacted last year, but saw larger adjustments at this renewal.
At April 1, 2012, the U.S. property-catastrophe reinsurance market continued to work through changes triggered by the RMS RiskLink v11 release and the catastrophe activity of 2011 - and there was no “one-size-fits-all” answer. Reinsurers are becoming increasingly sophisticated in their approaches, and consequently gaining more confidence in their own risk assessment parameters. This includes a considerable amount of customized analysis based on reinsurers’ own research and experience, a factor at both the January and April renewals in 2012.
RMS v11 continues to be a factor as reinsurers have a much fuller assessment of how changes to the model impact their own pricing and capacity views. It also impacts reinsurers’ willingness to deploy capacity below a certain price in areas where their own probable maximum losses may have been affected. A portion of the price change at April 1 was driven by increases in minimum rates on line in areas such as the Northeast. Fairly small adjustments at low rates on line tend to drive the average percentage increase up.
Consistent with market behavior a year ago, programs seeking capacity in excess of expiring experienced heavier pricing scrutiny. In order to ensure sufficient capacity, therefore, some companies put out higher firm order pricing than they may have otherwise. Reinsurers continued to show more willingness to reduce support for programs significantly if pricing did not meet expectations.
For the U.S. property catastrophe reinsurance market, the number of programs renewing in April is much smaller than that renewing in January. Furthermore, individual company results vary substantially based on specific circumstances. Nonetheless, the range of average quotes at the April 1, 2012, renewal was almost exactly in line with the January 1, 2012, spread at down 12 percent to up 11 percent. However, while the overall range was in line with January, there was significant reinsurer movement within the range, continuing the trend of reinsurer behavior tailored to individual program analysis.
While an evolving reinsurance market continues to challenge companies to find the right partners and approaches, the availability of adequate capacity remains a key factor. Capacity continues to be sufficient for the U.S. property catastrophe market, as there are reinsurers providing substantial authorizations as long as pricing meets expectations.
As at January 1, renewals are not subject to a general market drift but are being priced and placed based on individual criteria. Assessment of individual markets’ evolving preferences and underwriting approach is essential.