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There were some rate increases for reinsurance buyers during Jan. 1 renewals, though the increases were patchy according to location, line of business and loss experience, experts say.
While reinsurance capacity remains plentiful, record natural catastrophe losses in 2011 means buyers for insurers that suffered losses or have exposures in loss-affected territories have seen their rates increase.
Many U.S. cedents experienced rate increases, in part because of revised catastrophe models, though the size of those increases varied depending on their geography and loss experience, experts say.
“The high relative balance of capital in the reinsurance industry has greatly influenced the ability of our clients to accomplish orderly renewals,” said Bryon Ehrhart, chairman of Aon Benfield Analytics in Chicago.
“Reinsurance underwriters are doing a good job of considering the appropriate lessons from recent losses and carefully differentiating individual insurers' exposures and experience,” he said.
While Aon Benfield no longer publicly discloses information on rate movements, Mr. Ehrhart said clients on the whole found there was sufficient capital and interest in their programs to secure “an orderly global renewal process at Jan. 1, 2012.”
Swiss Re Ltd. does not comment specifically on rates, but “the high number and severity of natural catastrophe events in 2011 mean that we are moving closer to pricing improvements, so there could be an increase in premium rates” in 2012, said Kurt Karl, the company's chief economist.
Some rate increases, particularly in casualty lines, are likely, he said.
“After a bruising year of natural catastrophe losses, many outside the traditional key catastrophe zones, reinsurers have largely reacted as anticipated with differentiated rating approaches driven by individual client and territory results,” said James Vickers, chairman of international business at London-based Willis Re International & Specialty, the reinsurance brokerage arm of Willis Group Holdings P.L.C.
“With the exception of a few long-tail classes, reinsurers have concentrated on increasing prices for natural catastrophe-exposed covers, which is leading to wide pricing differences by class,” Mr. Vickers said.
The marketplace at Jan. 1 was “very geography-specific and, even within geographies, very zonal-specific,” said Ross Howard, London-based chief operating officer of Towers Watson & Co.'s European operations.
The rates that cedents were charged for their reinsurance depended on their loss records and the impact of modeling changes, such as Risk Management Solutions Inc.'s version 11 of its U.S. hurricane model, he said. Books of U.S. business with losses saw rates increase; in some cases, buyers with peak-zone exposures saw double-digit rate hikes, he said.
While reinsurers were looking at their own aggregates in peak zones, largely because of the RMS model changes, most rate changes were attributable to losses, he said.
In addition, some reinsurers reduced their line sizes because of changes by RMS and other modelers, among other factors, he added.
In an analysis, Willis Re said, national U.S. property accounts that were free of catastrophe losses in 2011 saw average rate increases ranging from 2.5% to 10%. Regional U.S. programs that were free of catastrophe losses last year saw rate changes ranging from decreases of 2% to increases of 5%.
U.S. reinsurance rates moved up “in line with increases indicated by mid-2011 renewals, but with greater differentiation by client and portfolio reflecting both individual results and exposures,” Willis Re said in its report.
In its analysis of the reinsurance market, New York-based brokerage Holborn Corp. said U.S. property catastrophe business with coastal exposures with a recent loss saw rate-on-line increases of 10% to 50% at the January renewals, while coastal-exposed business without recent losses experienced rate-on-line increases of 5% to 12.5%.
Even property without coastal exposures saw higher rates. For U.S. property catastrophe accounts with recent losses, rates rose 10% to 50%; for loss-free accounts, rates rose 5% to 10%, according to the analysis.
In Continental Europe, buyers did not, on the whole, see large rate changes, said Towers Watson's Mr. Howard.
“It has been very static and we would expect that to continue,” he said.
While some of the larger European reinsurers and insurers have exposure to Europe's sovereign debt crisis, the reinsurance market generally was flat at Jan. 1 renewals, he said.
According to Willis Re's report, there was adequate capacity for European risks, though the market “tightened noticeably during December.” The multiterritory, peak-zone, excess-of-loss market in Europe generally was stable, with only modest rate increases on some loss-affected business.
While 2011 natural catastrophe losses were huge in Asia—notably Australia, Japan, New Zealand and Thailand—much of that business will not renew until later this year, Mr. Howard said.
The casualty market remained fairly flat at the Jan. 1 renewals, experts said.
“Some reserve releases are still coming through from earlier underwriting years to help cushion quarterly results,” Peter Hearn, chairman of Willis Re, said in Willis' renewals report. “But there is increasing divergence between reinsurers, as some are increasing reserves for catastrophe losses earlier in the year, and a few are posting increases for asbestos-related claims.”
Commercial property insurance activity during the year-end/new year renewal season tells a tale of two markets.