Record Cats But Market Discipline Waning Report Says

January 20, 2005

Despite a second year of unprecedented catastrophe losses, increasing competition is already forcing underwriters to choose between sacrificing premiums, profit or capital, according to a comprehensive report on the 2004/5 reinsurance renewals prepared by Benfield, a leading independent reinsurance intermediary.

“While 2004/5 renewals were orderly, there were signs that competitive pressures are increasing in some sectors,” said Grahame Chilton, chief executive of Benfield. “And though an increased use of modelling and a sharper focus on return on equity continued to exert some discipline, more and more reinsurance underwriters were willing to undercut pricing to secure attractive business.”

The 68-page report, titled “Outrageous Fortune,” notes that there was ample capacity in most classes. Strong earnings and fewer reserve shortfalls eased pressure on balance sheets and hedge funds also brought additional capital to an already over-supplied market.

Countering the trend for relaxed pricing was the continued pressure from rating agencies, regulators and investors demanding consistent returns and capital adequacy. For their part, cedants remained highly sensitive to reinsurer credit quality, particularly for casualty lines.

2005 Renewals Overview

According to the report, overall property rates softened further in most areas, except for those affected by hurricane losses. Casualty rates remained stable with some exceptions, most notably D&O. While pricing softened in many lines, terms and conditions showed little or no change.

Loss-free U.S. cedants saw property catastrophe prices drop by as much as 10 percent. However, firms with cat losses saw prices rise by up to 20 percent. Meanwhile, cat pricing in Western Europe dropped between 5 and 10 percent.

A survey of Benfield brokers also found that cost was the primary concern for 32 percent of reinsurance customers, followed closely by coverage/terms/conditions (29 percent), and security (28 percent). Only 9 percent of cedants listed ratings as a primary concern and only 2 percent considered brokerage fees a primary concern.

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

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