Japanese insurers delay reinsurance renewals, price rises seen

by Artemis on April 4, 2011

Some Japanese insurers chose to extend their current reinsurance programs rather than renew at the recent 1st April renewals date. With prices in the aftermath of the earthquake and tsunami rising significantly, some insurers have chosen to hold off while losses continue to be assessed.

Price rises of 5% to 10% have been seen for Japanese typhoon risks while Japanese earthquake risks have risen in price by as much as 25% to 50% as the market adjusts its expectations in the wake of the disaster, according to Aon Benfield in their recent renewals report.

Bryon Ehrhart, Chairman of Aon Benfield Analytics, commented:

“Understandably, a number of the major Japanese insurers have paused the renewal process while they take time to assess the impact of the tragic earthquake and tsunami. However, the reinsurance market remains functional with its existing capital base, and we do not anticipate the need for material new capital flows into the reinsurance market to satisfy insurer demand for catastrophe reinsurance based upon the global events to date. Just as we witnessed following the regionally significant Chilean earthquake in early 2010, the reinsurance market continues to offer the capacity required by insurers at terms and conditions that remain lower than the cost of insurers’ equity capital.”

U.S. and European property catastrophe rates have continued to decline despite the rise in global catastrophe losses of late. It is expected that rates decreases will be low to flat in the next reinsurance renewal period in June/July.

Aon Benfield also comment on the industry loss warranty (ILW) market and say that since the disasters in Australia, New Zealand and Japan this quarter pricing has reacted firmly, increasing by 20% to 30% on average. U.S. windstorm and U.S. nationwide contracts have increased in price by 20% since the recent model changes and a mismatch in supply and demand, this does suggest that rises in reinsurance prices are likely in the future but how far off we can’t be sure.

Willis Re have said in their renewals report that they don’t see the Tohoku earthquake turing the soft market just yet. However they do say that the combined impact of first quarter events means that should reinsurers be tested again this year that will accelerate the likelihood of a market-wide turn.

Peter Hearn, Chairman, Willis Re, said:

“While the financial strength of the reinsurance industry remains remarkably intact in the wake of Tohoku, it can only withstand so many blows. The reinsurance industry is on the cusp of change and a hard market may be only one more major event away. It could be something as dramatic as a catastrophic hurricane during the upcoming North Atlantic and European winter windstorm seasons or something more systemic like creeping inflation, but whatever the cause, reinsurers have proven their resilience and are gearing up for a bumpy ride over the remaining months of 2011.”

Interestingly Willis Re point out that some companies seeking retro cover may be disappointed as retrocessional capacity could be insufficient to meet demand for the rest of 2011. They suggest that there may be interest from the capital markets to work with reinsurers to provide additional capacity.

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