Market behavior is similar to earlier patterns. Overall 2010 quoting behavior was less volatile than 2009 with average quotes in the range of declines of 10 percent to increases of 10 percent versus 2009 when the range was declines of 15 percent to increases of 15 percent.
The rate decreases for U.S. property cat were as expected across the July 1 renewals. Preliminary analysis of the renewal data shows that pricing was down in a range equal to earlier renewals on a risk- adjusted basis, decreasing 10 percent to 15 percent. Overall, pricing for the year ended down 12 percent.
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The Guy Carpenter Global Reinsurance Composite’s non-life underwriting result suffered a loss of USD1.5 billion. This loss contrasts with the corresponding quarter in 2009, which showed a non-life underwriting gain of USD1.1 billion. The first quarter of 2010 was dominated by natural catastrophe events including the Chile earthquake, U.S. winter storms, Windstorm Xynthia in Europe and hail in and around Melbourne, Australia. Catastrophe losses from events in excess of USD250 million totaled approximately USD17 billion in the first quarter of 2010 compared with USD7 billion in the first quarter of 2009.
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The large number of major losses that occurred in the first quarter impacted the Guy Carpenter Global Reinsurance Composite’s loss ratio, increasing it to 79.9 percent from 65.3 percent in the first quarter of 2009 and 62.7 percent for the full year 2009.
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Aggregate shareholders’ funds for the composite declined in the first quarter of 2010 by 0.4 percent to USD109.5 billion from a 2010 year-end figure of USD110 billion. The slight decline occurred as reduced net income accompanied the members’ dividend payments and share buybacks. The latter were instigated in response to the newly replenished balance sheets, as the investment environment improved.
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Consistently in 2010, capacity has returned in abundance, counterbalancing the direct impact last year’s scarce capital had on pricing. In addition, reinsurers writing Florida business tend to view metrics for this exposure within a very narrow band, much more so than other catastrophe exposed regions. Variation in average quotes ranged from declines of 3 percent to increases of 3 percent, which is similar to what we saw for Florida renewals in 2009. This is a much tighter spread than that observed at both January 1 and April 1, 2010.
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While average quotes dropped 5 percent to 7 percent from 2009 quotes, reinsurers overall were very consistent in providing indicated pricing this year that was almost flat as compared to 2009 firm order terms. These indications were surprising given the general expectation following the January and April renewals that decreasing pricing trends would continue. Following significant discussion with clients and markets, 2010 firm order terms averaged a decrease of 5 percent to 7 percent in the lower layers,where capacity isn’t as abundant and a decrease of 13 percent to 15 percent in the upper layers.
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The overall effect of this year’s renewal process was a shift in pricing back to roughly 2008 levels. The layers exhausting at the highest return periods ended slightly better than in 2008. As indicated in the chart, pricing since 2007 has remained in a very stable band. Even with the significant global economic turmoil of 2009, enough capacity was available to keep pricing within an expected range,unlike the pricing implications of 2006 coming off of multiple unprecedented hurricane losses in 2004 and 2005.
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Source: Guy Carpenter; Highline Data
Data presenting the ratio of IBNR Reserves to Initial Accident Year Reserves. The trend follows the underwriting cycle. In a soft market, IBNR is not as generous. In a harder market, where premiums are higher and more dollar per unit of risk is being earned, IBNR is more generous.
This chart represents the 144A Catastrophe Bond market. Capital outstanding peaked at approximately USD14 billion in 2007 and has remained fairly stable at approximately USD12 billion. It should be noted that other formats exist for investors, in addition to the 144A realm, such as the industry loss warranty market and collateralized reinsurance.
Source: Guy Carpenter & Company, LLC
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies, Inc. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.
