Benfield Study Finds Reinsurance Rates Holding Firm

January 19, 2004

Benfield, an independent insurance intermediary, has released a new report, which concludes that despite ”ample capacity and signs of resurgent competition, the reinsurance market generally maintained underwriting discipline during the 2003/4 renewal season.”

The 63-page report, Holding the Line, notes that “while property catastrophe prices weakened, the process was orderly, with no sign of the unbridled competition which normally characterizes the start of a soft market. Casualty rates, meanwhile, increased further, but at a slower rate.”

Benfield’s report is the first real evidence that repeated efforts to tame the dreaded “cycle” might actually be successful, at least in mitigating it’s worst downside effects. For months executives and commentators from all sectors of the reinsurance industry have been inveighing against the pernicious effects of the market cycle, and, as the report shows, a lot of people seem to have been listening. So far reinsurers appear to have enshrined underwriting discipline and a commitment not to chase market share as top priorities.”

“The question for 2004 is: Will underwriters continue to hold the line?” stated Grahame Chilton, Benfield Group’s Chief xecutive. “There is substantial new capacity. A few players seem willing to pursue growth aggressively. Except for a few difficult casualty lines, there is no shortfall for capacity. And catastrophe losses have been low. With this set of circumstances, history would suggest a rapid softening of the market. However, there appear to be specific reasons for the current state of the market, which Benfield expects to contribute to continued stability throughout 2004 and possibly longer. The question now is – how long will this last?”

Benfield summarized its conclusions at the end of its press bulletin as follows:
Industry fundamentals seem finely balanced
A late but disciplined renewal season belied some expectations of a return to soft market conditions. With challenging fundamentals and competition still muted, there seems to be little to test underwriters’ resolve to ‘hold the line’. Consequently, barring a major catastrophe loss, Benfield expects the market to remain relatively stable through 2004.
Market conditions changed little at renewal
Property catastrophe rates weakened although there were few signs of irresponsible pricing or of a marked resurgence in competition. Casualty pricing increased further albeit at a slower rate. Coverage in some areas such as terrorism was more widely available but terms and conditions generally remained more stringent than before 9/11. Credit quality surpassed even price at the forefront of many cedants’ concerns. Capacity was ample in most lines but this should be viewed in the context of two years of exceptionally benign catastrophe losses and substantial IBNR overhang from 9/11.
Discipline remains key
Historically underwriters tend to focus on top line premium volume once cyclical losses ease. However investors, regulators and rating agencies are now demanding sustainable profitability. Despite recent interest rate rises, investment returns are unlikely to offset underwriting losses as they have in the past. Underwriting discipline is no longer an optional luxury for reinsurers looking to prosper.
The ‘Big Squeeze’ continues
Balance sheets continue to be squeezed. Some pressures, such as asset depreciation, have eased but others, such as legacy reserving, remain. Balance sheet replenishment remains a high priority.
Rating scrutiny intensifies
As balance sheets have weakened, rating agencies have belatedly reassessed their methodologies, while cedants have become even more focused on ratings in the wake of further downgrades across the sector. Ratings are now crucial to market share and a potential survival issue for some reinsurers.
Appetite for new ventures reduced
Most of the USD27bn new capital raised in 2003 was used to plug balance sheet holes. Reinsurance start-ups reduced to a trickle suggesting that expected medium term returns are now less attractive. Meanwhile poor results have prompted some primary insurers to dispose of their reinsurance activities.

A full copy of the report can be viewed online at and printed copies can be obtained by contacting

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