The upwards pricing movements seen in the retrocession market during the January 1, 2012, renewals continued into June both in terms of direction and magnitude. Hardening rates reflected the unprecedented run of international losses in 2011 and the continuing uncertainty surrounding ultimate loss numbers from these events, particularly the Thailand floods.
In addition, RMS v11 now looks to be fully implemented by buyers as an internal measure of risk and by markets (the majority of whom use RMS v11 in a ‘blended’ approach with either their own proprietary models or other model vendors). The entrenchment of v11 modeled loss assumptions has been a further factor in increasing retrocession rates.
However, although June renewals ended up with pricing similar to that of January 1, 2012, the actual rate rises were mitigated (in a way they were not at January 1) by the fact that most post-January 1 programs had already seen rate increases last year. During the April, May and June renewals in 2011, rates rose as a consequence of the early run of 2011 international losses, for example, the New Zealand and Japan earthquakes. The programs in 2011 saw disproportionate rises (compared to programs at the January 1, 2011, renewal) due to both the spike in capacity pricing in general that the events caused in the marketplace and also as some of the programs themselves directly suffered Japanese losses.
Overall, rate movements at April, May and June led to a pricing level similar to that of January 1, 2012. However, the actual rises per program were softer than those seen at January 1, 2012, due to markets taking into account the disproportionate (versus January 1, 2012) rate rises seen at last year.
Capacity remains adequate for both U.S. and excluding-U.S. business, in part due to the number of retrocession sidecars activated at the end of 2011 (although the majority of these were able to utilize fully their capacity at January 1, 2012). There have also been a few new, small entrants into the retrocession arena, although generally these markets are offering territory-specific capacity.