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Buyers enjoy good start to year

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There was good news for European primary insurance buyers at this year-end, as brokers reported plentiful capacity and softening rates for most lines of reinsurance business, apart from windstorm-exposed U.S. property catastrophe risks.

This should translate into rate reductions for primary lines.

Some brokers also pointed to a continued "disconnect" between the primary and reinsurance markets; with some primary buyers pushing for—and receiving—proportionately larger rate reductions on their programs than insurers are seeing on their reinsurance cessions.

The financial good health of the insurance market and the absence of any major catastrophes during 2006 has given insurance buyers the clout to demand that good loss records are rewarded in rate reductions.

The famed insurance and reinsurance cycle surely is, most observers agree, a fact of life. Retrocessional capacity and reinsurance pricing will, for the foreseeable future at least, continue to have an effect on the price that the ultimate insurance buyer pays.

But a clearer link between loss experience and insurance pricing should give buyers greater stability and smooth some of the cycle's most violent swings.

The tactical approach of some reinsurance buyers to leave their purchasing up until the last minute in order to seal the best deal may not be so easily eradicated, however.

It is typically never a good idea to ask a reinsurance broker how he or she enjoyed their end-of-year holiday season, since the last-minute scramble to get programs placed before January 1 often means they forego many of the pleasures of the festive season.

With the drive towards contract certainty in London, expectations were that this year's renewal may have been more orderly than normal.

But it appears that this renewal season was no different, with brokers working right up until the end of the year to get programs "home".

Indeed, one London-based reinsurance broker remarked that the best thing about working right up until the year's end was the lack of traffic on the City of London's otherwise congested streets.

And another bemoaned the fact that, yet again, he had to miss an annual skiing holiday with friends in order to get contracts placed before the clock struck midnight on December 31.

But despite the tardiness of the renewal in London and elsewhere in Europe, market sources are confident that the London market's drive towards contract certainty has been successful.

The U.K. Financial Services Authority, imposed a target of 100% contract certainty for all business placed in the United Kingdom from January 1, 2007.

London-based Brit Insurance Holdings P.L.C. became one of the first to announce that it believed it had met the deadline. Contract certainty should, of course, be hugely beneficial for insurance buyers-resulting in greater efficiency and an overall smoother placement and renewal process.

But the momentum must be maintained and it is up to risk managers throughout Europe to ensure that it does to achieve greater certainty.