Credit reinsurance rates were flat, which, when applied to a rising income base and exposures that were up approximately 20 percent, resulted in a marked reduction in a rate (premium) on exposure measurement. Other than some relatively isolated incidents, an absence of major losses hitting excess of loss covers sustained successive years’ premium reductions. The vast majority of reinsurance is transacted on proportional basis and there have been significant increases in ceding commission. Some markets saw a third successive year of ceding commission increases.

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Reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012. Capital has continued to strengthen through the second quarter of 2012, moderating pricing pressures, according to a briefing released today by Guy Carpenter & Company.

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Personal Accident

The trend of hardening rates continued in 2012 although at a slightly lower pace. Risk adjusted rate increases were between 3 percent and 11 percent. Companies whose lead terms were agreed prior to the Tohoku earthquake last year had to accept a steeper increase.

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In the credit and bond primary market, rates are flat, but these are not rate-driven classes. In political risk and especially structured credit, rates are under considerable upwards pressure for obvious reasons. The outlook for 2012 is turbulent, given the prevailing macroeconomic uncertainty and instability around the world. Loss ratios are quite likely to increase.

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Capacity in the credit reinsurance sector remains meaningfully over-subscribed, impacting pricing and terms. Over-subscription arises as a result of various signal contributing factors. The (re)insurance industry in general is oversubscribed, with returns in other lines of business relatively lower. We see no realistic expectation for significant change in the short term. Credit loss ratios worldwide returned to profitable positions far faster than had been anticipated.

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David Flandro, Global Head of Business Intelligence, Claude Lefebvre, Head of GC Analytics EMEA Region, Mark Shumway, Senior Vice President
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Solvency II will profoundly impact the reinsurance market, though perhaps not exactly in the ways reinsurers or regulators have anticipated. This impact will not be limited to European reinsurance markets, but will be felt globally. Advances in disclosure and overall market strength will come with costs, including a more volatile pricing environment.

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Loss experience defined the credit, bond and political risk reinsurance renewal, with loss-free programs securing significant rate declines and those affected seeing steep increases. Reinsurance rates on loss-free working layers fell 20 percent on average, while those with losses saw increases of 15 percent to 25 percent, depending on severity. Rate increases were slight for high-risk excess programs if there was underlying activity and flat where there was none.

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David Edwards, Managing Director
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Guy Carpenter & Company, LLC (Guy Carpenter) has released its fourth annual market update from its London-based Credit, Bond and Political Risk Team.

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Credit and Bond 

The market conditions for 2010 are fundamentally different from the 2009 renewal season. 2009 saw very tough conditions with capacity scarce and placements taking much longer to finalize. In 2010, we have seen continuing hardening of terms, but a general abundance of capacity and much quicker response times from reinsurers. The loss of capacity from Swiss Re was comfortably exceeded by increases from existing and new reinsurers.  

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