Reinsurance Rates Falling or Flat, Except on U.S. Wind Exposures, Willis Reports

January 2, 2007

Reinsurance rates for the property casualty industry are falling or flat, except for insurers with major property wind exposure along the Gulf and East Coasts in the U.S., whose rates are still rising.

That is one key finding from an annual international reinsurance review issued by Willis Group Holdings, the global insurance broker. The reinsurance review of the marketplace for the Jan. 1, 2007 renewals is entitled “The Tipping Point?”

According to the report, reinsurance rates for both property and casualty exposures around the globe are generally flat or falling modestly. In Europe (with the exception of wind exposed Northern European multi- territory covers where rates are firm), Asia, Australia, Latin America and those areas and classes of business of the U.S. not prone to natural catastrophes, rates are flat or have fallen by 5 percent to 10 percent.

The report covers over 25 territories and 17 classes of business.

“The twin blessings of fewer losses and more capital combine to make the 2007 reinsurance renewal season, for most insurers, less costly. Reinsurers are rebuilding both their balance sheets and their commercial confidence while, at the same time, insurers are creating and implementing sophisticated enterprise risk management programs, ” writes Peter Hearn, Willis Re chief executive officer.

According to Willis, the major exception to the trend of flattening rates is U.S. property business on the East Coast or Gulf Coast wind-exposed business. This business is experiencing rate increases of around 40 percent as reinsurers have sought to bring January renewals of nationwide and/or critical catastrophe accounts in line with the mid-year 2006 pricing levels.

The U.S. coastal rates are also rising due to the “perception of increased volatility” contained in the latest property catastrophe models and the continuing efforts by reinsurers to recoup losses from the catastrophes of 2005.

The Willis review maintains that reinsurers and their investors have a “new appreciation for the insured values and the resulting catastrophe exposures” in the Northeast of the U.S. – the third “peak zone”.

There is simply not enough retrocession capacity for reinsurers to spread their catastrophe risks, Willis contends. Reinsurers, as a consequence, require greater returns to compensate for this increased retained exposure, the report adds.

In U.S. casualty lines, renewals showed a continued softening in the primary market during last quarter. According to Willis, there have been several new excess and surplus casualty start-ups and the Bermuda insurers started in 2005 have shown interest in entertaining certain casualty reinsurances.

As for professional liability in the U.S., the Directors & Officers market displayed a “modest increase in capacity and appetite.” Also, policy terms and conditions “slightly” improved.

In the errors & omissions product line, reinsurance renewals for January showed there is “abundant capacity/appetite for most classes, except large accounts, at attractive terms and conditions.”

Looking forward to 2007, the report notes that “the atmosphere of relief is almost tangible” as the market takes advantage of the current respite and works to apply the risk management lessons of the 2004 and 2005 underwriting years.

CEO Hearn comments that reinsurers are rebuilding both their balance sheets and their commercial confidence while in parallel insurers are creating and implementing enterprise risk management programs.

Source: Willis .

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