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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Part I: Introduction and US Property: Further erosion of rates was evident at the July 1, 2010 reinsurance renewal. Property rates were down by as much 15 percent despite substantial catastrophe loss activity in the first half of 2010. Heavy losses from the Chilean earthquake were insufficient to turn prices outside the areas immediately affected by the earthquake, despite the announcement of large increases in estimates from the largest European reinsurers. In the energy and casualty sectors, conditions were flat or down, but the Deepwater Horizon rig disaster may exert upwards pressure as more information emerges. Excess capital remains available to absorb losses as evidenced by continuing share buy-backs and the substitution of equity capital with less expensive debt.
Part II: Latin America and Caribbean, Retrocession: In the Latin America and Caribbean region excluding Chile, terms and conditions in the property excess of loss and pro rata lines were unchanged at the July 1 renewal.
Part III, Marine & Energy: At the July 1, 2010 renewal, territories and marine classes that were unaffected by losses have seen rates remain stable. We have also witnessed a slowing in the decline of rates. The Deepwater Horizon Gulf of Mexico loss did not cloud reinsurers’ judgments when quoting international placements and each account was underwritten separately based on specific account losses and exposures.
Part IV, Casualty: At the July 1 renewals the US casualty lines continued to demonstrate a soft pricing environment with few changes seen from the prior renewals in the year. The direct market showed a general improvement in profitability as underwriting results and net investment gains increased. This occurred as premiums declined, further impacting a soft reinsurance pricing environment. A recent development is a slowing in the decline of the subject premium base for many casualty lines. It appears to be stabilizing (even increasing in some lines) as a result of the recovering economy.
Part V, Life, Accident & Health: The passage of health reform in the United States has put medical insurers in the challenging position of trying to understand how to manage unlimited lifetime claim maximums. In the short term, annual caps on payments are still allowed, easing the transition, but this change creates increased risk for insurers as volatility is increased and rate-making is necessarily based on assumptions rather than experience. We are seeing increased demand for high attachment medical excess reinsurance with high limits - many clients are looking for unlimited cover to match their required offering. This may create an excellent opportunity for reinsurers willing to step up to the challenge. Many are offering limits from USD10 million to USD20 million attaching at excess of USD5 million. A few reinsurers have come forward with unlimited coverage. Pricing is varying widely between carriers but should begin to converge for the very high attachments.
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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. 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.
David Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health SpecialtyMedical
The passage of health reform in the United States has put medical insurers in the challenging position of trying to understand how to manage unlimited lifetime claim maximums. In the short term, annual caps on payments are still allowed, easing the transition, but this change creates increased risk for insurers as volatility is increased and rate-making is necessarily based on assumptions rather than experience. We are seeing increased demand for high attachment medical excess reinsurance with high limits - many clients are looking for unlimited cover to match their required offering. This may create an excellent opportunity for reinsurers willing to step up to the challenge. Many are offering limits from USD10 million to USD20 million attaching at excess of USD5 million. A few reinsurers have come forward with unlimited coverage. Pricing is varying widely between carriers but should begin to converge for the very high attachments.
Chris Klein, Director of Reinsurance Markets
Contact
Casualty
US Casualty
At the July 1 renewals the US casualty lines continued to demonstrate a soft pricing environment with few changes seen from the prior renewals in the year. The direct market showed a general improvement in profitability as underwriting results and net investment gains increased. This occurred as premiums declined, further impacting a soft reinsurance pricing environment. A recent development is a slowing in the decline of the subject premium base for many casualty lines. It appears to be stabilizing (even increasing in some lines) as a result of the recovering economy.
At the July 1, 2010 renewal, territories and marine classes that were unaffected by losses have seen rates remain stable. We have also witnessed a slowing in the decline of rates. The Deepwater Horizon Gulf of Mexico loss did not cloud reinsurers’ judgments when quoting international placements and each account was underwritten separately based on specific account losses and exposures.
Latin America and Caribbean
In the Latin America and Caribbean region excluding Chile, terms and conditions in the property excess of loss and pro rata lines were unchanged at the July 1 renewal.
Chris Klein, Director of Reinsurance Markets
Contact
Introduction
Further erosion of rates was evident at the July 1, 2010 reinsurance renewal. Property rates were down by as much 15 percent despite substantial catastrophe loss activity in the first half of 2010. Heavy losses from the Chilean earthquake were insufficient to turn prices outside the areas immediately affected by the earthquake, despite the announcement of large increases in estimates from the largest European reinsurers. In the energy and casualty sectors, conditions were flat or down, but the Deepwater Horizon rig disaster may exert upwards pressure as more information emerges. Excess capital remains available to absorb losses as evidenced by continuing share buy-backs and the substitution of equity capital with less expensive debt.
Lara Mowery, Managing Director
At each Florida renewal season there are many challenges companies face in designing and placing their reinsurance programs. This year was no exception. While companies deal with navigating the challenges of the Florida Hurricane Catastrophe Fund (FHCF) integration each year, 2010 also included heightened commentary by rating agencies regarding acceptable risk transfer approaches, the Florida Office of Insurance Regulation’s (OIR’s) own views on risk transfer and an environment of continuing economic turmoil specific to the Florida insurance environment.
In a positive development for these companies, reinsurance pricing continued its 2010 trend of price declines and dropped year over year on a risk adjusted basis by 10 percent to 12 percent on average. This drop returns pricing to a level close to that seen in 2008, particularly in upper layers.
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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