According to Willis Re’s Jan. 1 renewal report, 2012 natural catastrophe losses are estimated to be 50 percent less than last year’s losses of $120 billion and as a result “most reinsurers are not facing any material capital impact and remain within their annual catastrophe budgets.”
Willis re says this has resulted in stabilization of rates on property classes and no blanket rate increases at Jan. 1.
Willis Re is the reinsurance arm of Willis Group Holdings. The report, entitled “Reinsurers Clear the Sandy Hurdle,” notes that “in general” international rates for property catastrophe business are risk adjusted flat to -5 percent and U.S. rates for property catastrophe are risk adjusted flat to -5 percent on loss free accounts, and +10 percent on loss impaired accounts.
“In the absence of Superstorm Sandy, reinsurers would have found it difficult to resist buyer pressure for further concessions,” Willis Re Chairman Peter Hearn said. “As such, Sandy’s impact has helped to stabilize market pricing on an overall basis and reinsurers have largely delivered to their clients in terms of capacity and continuity.”
According to the report, internationally, Sandy has caused little impact, and despite the addition to the market of new capital and promising 2012 underwriting results, it is the repercussions of the global financial crisis which still influence conditions and pricing in the sector. The report cites the facts that investment returns are dwindling, primary companies in most mature markets are finding growth difficult, and larger primary insurance groups are restructuring the way they buy reinsurance.
The report singles out 2012 as having been “particularly difficult for the marine market,” which has suffered one of its worst underwriting years in recent history. Already suffering from the Costa Concordia and the deterioration of the Rena loss from 2011, Superstorm Sandy is widely expected to be the largest ever marine loss with a disproportionate impact on the marine market.
There are large losses coming from yachts and pleasure craft, general cargo, imported cars, specie and inland marine. In addition, Jan. 1 marine renewals are especially late due to uncertainty surrounding losses emanating from Sandy, the report says.
“Many buyers have increased retentions on loss hit programs to help mitigate rate increases which are a minimum of +15 percent, even on loss-free offshore Energy excess of loss contracts. The P&I market is seeing minimum of 10 percent increases with International Group Reinsurance Program +40 percent. P&I Clubs are passing on increased reinsurance costs via original General Increases in the range of +7.5 percent to +10 percent,” according to the report.
Willis Re’s report also highlights the following renewal trends:
- The capital base of the global reinsurance industry remains adequate and has benefited from an accelerating inflow of new capital, particularly from long term investors drawn to event risk as an alternative non correlated investment class.
- It is a competitive environment for catastrophe bond issuance with third party capital activity picking up and broadening as investor demand outstrips issuer supply.
- In longer tail classes, frequency and severity of losses continue to decline and buyers continue to retain more.
- While it is unlikely to impact retrocession market significantly, Superstorm Sandy slowed any potential downward rate movement. With clients who are buying additional vertical cover also willing to take higher retentions to maintain the same spend, limits, retentions and risk-adjusted pricing were flat in general.
- The U.K. Motor excess of loss market has faced very difficult and late renewals with substantial changes to both terms and conditions driven by loss activity and capacity withdrawal.
Hearn added: “Overall, the global reinsurance market has maintained a measured and increasingly client-centric approach by providing adequate capacity to buyers, together with an increasingly differentiated approach at a client- and class-specific level. Final terms and conditions have, in most cases, been in line with client expectations, as reinsurers largely delivered on the undertakings they made in the run up to renewal.”
Source: Willis Re
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