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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Chris Klein, Director of Reinsurance Markets
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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.

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Chris Klein, Director of Reinsurance Markets
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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.

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Christopher Klein, Global Head of Business Intelligence
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Evolution of the Property-Catastrophe Reinsurance Market

This year’s 8 percent Guy Carpenter World ROL Index increase differs profoundly from the 65 percent surge that followed Hurricane Andrew and the 24 percent hike following the terror attacks of September 11, 2001 in the United States. Even after losing 18 percent of its aggregate capital following the 2008 financial catastrophe, reinsurers were unable to push for the high rates that some expected. The evolution of the reinsurance industry over the past two decades suggests that carriers have become much more adept at managing risk and capital, making it easier to absorb shock losses and manage the cost to transfer risk.

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Global property-catastrophe reinsurance rates increased by 8 percent on average through the 2009 renewal season, according to the Guy Carpenter World ROL Index. This follows declines of 6 percent in 2008 and 10 percent in 2007. In the United States, the world’s largest reinsurance market (geographically), increases were fairly uniform at the January, April, June, and July renewals, moving in a channel of 10 percent to 15 percent, depending on region, exposures, and loss history.

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Christopher Klein, Global Head of Business Intelligence
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Reinsurance rates increased by 8 percent through the 2009 reinsurance renewals, as measured by the Guy Carpenter World Catastrophe Rate on Line (ROL) Index. Upward pressure came largely from the impact of the 2008 financial catastrophe on reinsurers’ balance sheets, which was exacerbated by the effects of Hurricanes Gustav and Ike. At the January 1, 2010 renewal, reinsurance rates are likely to show little movement, unless a major property catastrophe or financial shock occurs.

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David Rains, FSA, MAAA, Managing Director and Head of the Life, Accident and Health Specialty Practice and Dean Kidd, Managing Director
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There’s no single answer to the question of capital availability in the global life, accident, and health (LA&H) market. Reinsurers are responding to the returns possible for specific risks, which is driving their capital allocation decisions. Meanwhile, cedents are uniformly focused on managing the cost to transfer risk. As these factors converge on reinsurance rates — along with concerns about investment asset performance, geography, and the underwriting profitability of other lines of business — the result is a price stalemate caused by competing pressures of comparable strength. Without an unexpected market development, the norm is likely to persist.

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Ed Fenton, Managing Director
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Pro Rata Fire

A change from the past few years, the Japanese fire market enjoyed a relatively straightforward renewal at April 1, 2009. During the 2008 renewal process, insurers indicated that they would undertake various measures to improve the original business that forms the subject matter of these treaties. This year, it was desirable for each buyer to provide some kind of statement or presentation to update the market as to their progress against the goals that had been outlined at last renewal. All the major players produced such a statement and these were generally well received by reinsurers.

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Ed Fenton, Managing Director
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Earthquake Pro Rata

Capacity Purchased, Pricing, and Aggregate Movements

Probable maximum loss (PML) ceded by the market declined only slightly for the second year in a row at the April 1, 2009 reinsurance renewal in Japan. Some treaty restructuring caused capacity to increase modestly, resulting in the growth in “air” capacity (i.e., the difference between theoretical available capacity and actual capacity ceded). Rate on line (ROL) grew by approximately 2.5 percent. Commissions were unchanged.

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Probable maximum loss (PML) ceded by the market declined only slightly for the second year in a row. Some treaty restructuring caused capacity to increase modestly, resulting in the growth in “air” capacity (i.e., the difference between theoretical available capacity and actual capacity ceded). Rate on line (ROL) grew by approximately 2.5 percent. Commissions were unchanged.

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