Global Reinsurance Review January 2009

Reinsurance rate increases were moderate on average at the January 1, 2009 renewal. The Guy Carpenter World Rate on Line (ROL) Index rose 8 percent, in response to the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record. The degree to which prices increased was tempered by large capital positions at the beginning of 2008, enabling carriers to absorb the year’s losses, but this is where the generalizations end. Loss history, geography, and line of business led to wide differences in pricing. Expectations of another above-average storm year and the uncertainty surrounding the credit crisis underscore the need for continued capital management discipline in the coming year.

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Julian Alovisi, Assistant Vice President, Instrat®
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A record-setting Atlantic hurricane season and above-average manmade catastrophe losses put 2008 among the costliest years on record. While the economic downturn dominated the headlines throughout the year, lurking in the shadows was one of the most active hurricane seasons on record. Hurricanes Ike and Gustav, combined with other weather-related events and several large manmade catastrophe losses, triggered insured losses of USD50 billion in 2008.[1] Although weather-related events remained the largest source of losses (USD43 billion in total), several manmade catastrophic events triggered insured losses of USD7 billion, significantly higher than the annual average of USD4.8 billion.

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Hanspeter Hilfiker, Senior Vice President
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2008 Reinsurance Market Position

Earthquake is covered through an Interkantonaler Rückversicherungs-Verband (IRV) fund in 18 of the 19 monopoly cantons. It has a total capacity of CHF2 billion (USD 1.8 billion). The earthquake coverage provided by the monopoly insurers is voluntary and does not require any additional premium. One monopoly insurer, Zurich Cantonal Institute, covers earthquake for buildings in the remaining canton; it has capacity of around CHF 1billion (USD 0.9 billion). In addition to earthquake, the IRV covers its elemental perils exposure with stop-loss cover with capacity of up to CHF550 million (USD 500 million).

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Stefan Schneider, Assistant Vice President
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2008 Reinsurance Market Position

All major catastrophe model vendors are active in the Nordic region and have models for windstorm. In 2008 RMS and EQECAT released .new model versions. A significant change is that forestry exposure now is included in the models, which in the light of the Erwin loss in 2005 is considered to contribute to the PML for forestry exposed portfolios. Furthermore, EQECAT released a model for windstorm exposure in Finland which is the first available model for this country. Due to the coming Solvency II requirements the Nordic cedents tend to buy coverage up to a 200 years return period.

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Stephanie Vogg, Vice President
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2008 Reinsurance Market Position

For several years, catastrophe modeling has provided the basis for decisions on levels of reinsurance retentions and limits. All well-known modeling firms have products for modeling German storms. Some reinsurers also have developed in-house tools to estimate catastrophe exposure. The availability of new flood models and the density of extended elemental perils coverage in the primary insurance market have increased. Consequently, cedents have had a closer look at their catastrophe exposure. This, in turn, has lead to the purchase of some additional capacity.

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Chris Hu
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2008 Reinsurance Market Position

Reinsurance rates have declined for Southeast Asia since 2003. Low levels of insured losses are driving this trend. Average rates on line (ROLs) for property excess of loss cover vary by country, as do year-over-year changes.

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Walter Bernaerts, Senior Vice President
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2008 Reinsurance Market Position

Prices declined in Belgium during the 2008 renewal period. The downward trend was caused mainly by increased competition, which was driven by a greater need for diversification and another claims-free year. Most companies are buying cover in excess of the 100-year windstorm event. However, the actual amounts have varied depending on the catastrophe model used. A trend continues involving the management of additional volatility coming from new flood and earthquake exposures for homeowners policies through aggregate protections.

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Ian Wrigglesworth, Managing Director, Aviation
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The aviation renewal came without surprises and generally without change. After years of cedent-advantaged market conditions, pricing stabilized. Terms and conditions showed little (if any) change, and quoting was timely and disciplined. The market for aviation reinsurance appears to have reached a natural bottom, given the lack of movement in both reinsurance rates and terms and conditions. Neither was influenced substantially by loss history, reinforcing the notion that the pricing floor is natural.

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Berry Verkaar, Senior Vice President
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2008 Reinsurance Market Position

Continued overcapacity in the market for Dutch catastrophe business, with an increased interest from European and (new) Bermuda players is evident from the 2008 Dutch renewal season. Interest from the London market appears to have declined, as players in this region seem either unable or unwilling to match the prices currently charged for Dutch catastrophe business. Sustained pressure on price has led to a further 5 percent to 10 percent reduction (on average) for property-catastrophe programs.

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Hamish Dowlen, Senior Vice President
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2008 Reinsurance Market Position

The pricing of Polish catastrophe business is still quite competitive, with substantial capacity available from all reinsurance markets (worldwide). Since there have been no significant catastrophe losses since 2001, a relatively benign loss experience in recent years has put pressure on pricing. Carriers are generally purchasing protection up to high return periods. Retention levels have nonetheless increased for some larger buyers. As a result, Windstorm Kyrill losses remained within quite a few insurers’ retentions.

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