Walter Bernaerts, Senior Vice President
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.
The retention and limit ratios, which indicate retention and limit as a percentage of earned premium income (EPI), are relatively stable. The decision to buy less compared to two years ago has been influenced mainly by the lower windstorm exposure assessment of the new RMS model.
Retentions and limits are continuing to decrease, while the average ROL is increasing substantially. This is due, on the one hand, to the introduction of new perils and, on the other, to the lower limit bought.
The chart below indicates per layer the loadings charged by the markets on the rate on line as calculated according to the modeled data. The chart indicates that conditions favor cedents, as the fitted line for 2008 shows lower loads than the line for 2007.
While Belgium is exposed to a number of natural hazards – including windstorm, flood, and (to a far lesser extent) earthquake – there have been no significant catastrophic losses in recent years. The last windstorm, Kyrill, was considered as a non-event for reinsurance purposes. Daria, which occurred in 1990, was the last major windstorm, while the last major flooding event occurred in 1998.
As of March 2006, flood, earthquake, and landslide became compulsory for standard homeowners and small commercial fire policies. Before then, only fire and allied perils, including windstorm, hail, snow and ice damage and winter freeze, were covered. In 2004, the mandatory deductible for these fire policies was abolished, although the vast majority of policies keep a built-in deductible for natural perils. In most cases, this deductible is indexed according to the Consumer Price Index and is currently around EUR 212 (USD318), although some companies use a deductible specifically for flood of around EUR 1,000 (USD1,500).
The Court of Arbitration abolished a provision of the law that stipulated a limit per event per insurance company, ruling that the applied formula for earthquake was unfair for smaller companies. The Association of Belgian Insurers has consequently proposed a new formula to calculate the limit per event for flood and earthquake, which was implemented from July 1, 2008.
The possibility exists for insurers to cede highly exposed policies, mainly determined by flood risk, to the Tarification Office, if the required rate to cover the new perils exceeds 0.9 per thousand. These risks are redistributed to the Belgian insurance industry according to market share. However, in practice only a very small number of risks are ceded to the Tarification Office.
Premium rates vary from 0.10 to 0.15 per thousand for storm coverage. Rates vary far more for flood and earthquake, although the additional premium charged stays minimal.
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- Jean-Arnold Schoofs, Assistant Vice President