Spencer M. Gluck, Senior Vice President
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The merits of enormous stimulus packages are being debated while enormous budget deficits are on the rise. How long will their impacts last? When - if ever — will there be the political will to rein them in? Is there a serious bout of inflation in the future? No one can pretend to know the answer to these questions, and it may be futile to enter the debate. But what is not debatable is the tremendous economic uncertainty faced today. There may be uncertainty about whether inflation will rise, but there is no doubt that the risk of future inflation is at a level not seen in a generation.

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Focus on Asia Pacific

The main concern for the insurance market in the Asia/Pacific region is the frequency of loss, with several carriers having more than one loss occurrence in the year.

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GC ForeCat is a product developed by Guy Carpenter in collaboration with WSI Corporation, the world’s leading provider of weather-driven business solutions, that provides pre-season hurricane landfall forecast rates for different regions in the United States. GC ForeCat revolutionises hurricane forecasting by estimating the rate of landfall for regions along the US coastline. Four different regions (Gulf, Florida, Southeast and Northeast - see Figure 1) are derived with associated likelihood of tropical cyclones making landfall in each area. Monthly updates are anticipated up to and including May.

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Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead.The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.

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The primary marine market experienced flat and some reduced rates overall with a 5 percent to 10 percent reduction in many exposures. Generally loss experience in 2009 was favorable. Exposure reductions have been particularly evident in the cargo market as the economic downturn has prompted a significant reduction in the volume of goods shipped. The liability and P&I lines experienced flat to 10 percent increases while the offshore energy business was basically flat with some decreases of up to 10 percent for exposures outside the Gulf of Mexico. The outlook for 2010 is for further price softening as competition remains strong, some new capacity has entered the market and loss experience has been favorable.

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The Italian market was characterized by reinsurers who were not driven to quote aggressively, but then followed final terms. Average rate changes spanned a wide range from flat to up to 20 percent higher. Excess of loss (XOL) business without losses was generally flat, the exception being bond and credit coverage, which increased by 5 percent. Rate changes for XOL business with losses ranged from flat to increases of 15 percent for marine, 10 percent for cat and 5 percent for risk business and general third party liability. Motor third party liability business with losses experienced large average increases for exposures below USD2.5 million in a range of 15 percent to 20 percent. Exposures exceeding USD2.5 million showed rate increases of 5 percent. Continue reading…

The Scandinavian market was characterized by increased capacity provided by several reinsurers. Soft market conditions prevailed and rate changes were generally flat to declining. Loss-free cat excess of loss lines were flat to declining 5 percent. Property Risk business without losses was flat to down 5 percent. However, Property Risk business with losses, experienced rate changes that were flat to increasing 5 percent.

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The renewals season was relatively stable in the CEE countries, with very little change in excess of loss pricing (XOL) on risks without losses. Average rates for XOL property cat risks with losses rose by 5 percent to 10 percent. Average rates for XOL Motor Liability and General Liability risks with losses were generally flat to 5 percent higher. Risk XOL business was under heavy pricing pressure due to the strong availability of capacity in the market and the generally benign loss experience of recent years. For catastrophe excess of loss lines there was pressure from the market to increase retentions as frequency has increased.

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The January 2010 renewal season in France was characterized by stability, available capacity, low loss activity and strong competition. The lines where capacity was limited were credit and medical malpractice, the later impacted by distressed/heavy risks. Excess of loss (XOL) property cat business with losses showed average rate increases of 10 percent mainly on the low layers (hit by Windstorm Klaus), but changes were flat on the top layers. Change was also flat for business with no losses. XOL property risk business showed no changes for programs with losses and an average rate decrease of 5 percent for programs without losses. Cedents continue to move retention levels to keep reinsurance spend flat. No model changes occurred during the year, but Klaus did generate model recalibration activity.

Asia Pacific buyers are generally not affected by the same degree of falling original demand that has been experienced in Europe and North America. But reinsurance price competition is still strong and buyers with a clean record were able to secure reductions. Overall the price picture was mixed, because against the background of a market that is softening, there was significant loss activity in several territories during 2009, particularly in the Philippines and Indonesia. Buyers who received reinsurance recoveries in 2009 faced increases at renewal. In Australia an early renewal saw clients achieving risk adjusted rate reductions of up to 10 percent.

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