The key reinsurance renewals of the 1st January 2013 are now well underway with the majority of contracts bound and this gives reinsurers, brokers and buyers a chance to reflect on the last twelve months and the pricing and rates achieved at renewals. The view from reinsurance broker Willis Re is that there has been a stabilisation of rates on property catastrophe lines of business and no blanket rate increases.
Willis Re are the first to have published a reinsurance renewals report this year, looking at the state of the market at this key point of the year and discussing the trajectory and direction of any changes in reinsurance rates.
In general, Willis Re said that rates for international property catastrophe reinsurance business are flat to down -5% and the U.S. has seen rates on loss-free accounts of flat to -5% while loss-affected accounts have seen increases of up to 10%. This despite the impact of hurricane Sandy in the last quarter of 2012, which while a major loss-event for the insurance market was not sufficient to sustain rate increases it appears. In fact were it not for the impact of hurricane Sandy, reinsurers would have been looking at much broader rate decreases according to Willis Re.
Peter Hearn, Chairman, Willis Re and John Cavanagh, CEO, Willis Re said; “In the absence of Superstorm Sandy, reinsurers would have found it difficult to resist buyer pressure for further concessions. 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.”
The catastrophe loss experience of 2012 has been less than half that seen in 2011 and this has enabled reinsurers to remain well capitalised with losses coming in well within the expected bounds of their catastrophe budgets. This has allowed rates to stabilise, said Willis Re, and seemingly has moved the reinsurance market to one more in favour of buyers than sellers at this years renewals.
The report notes that the main influence on pricing and conditions in the reinsurance market is now the repercussions and continuing uncertainty caused by the global financial crisis. The continued reduction of investment returns, difficult conditions for primary insurers and changes to the way large reinsurance buyers purchase cover, are all challenges the market currently faces.
Marine is highlighted as an area of particular difficulty for reinsurers right now, with 2012 one of the worst marine underwriting years in the markets history. The development of the losses of the Costa Concordia and Rena from 2011 have increased the loss burden while superstorm Sandy is widely expected to be the largest marine loss ever. The marine renewals are said to be especially late in binding due to the uncertainty surrounding Sandy.
Willis Re said that buyers have been increasing retentions on marine programs to mitigate rate increases, which they say are a minimum of +15% even on unaffected lines such as energy excess of loss contracts. The Protection & Indemnity market has seen large rate increases of minimum +10% with the International Group Reinsurance Program +40%.
The Willis Re report also highlights the UK Motor excess of loss sector of the market as one which has faced difficult renewals due to loss experience and capacity being withdrawn. Despite the difficulties in UK motor and marine markets the reinsurance market as a whole has remained disciplined and the difficulties in these classes of business have not affected the broader marketplace.
The market for retrocessional reinsurance has seen risk adjusted pricing remain flat in general at the renewals. There has been no shortage of capacity, according to Willis Re, with both traditional retro capacity and collateralized capacity abundant with new and renewed sidecars, start-up funds and more sellers of pillared retrocession products.
The retro renewals saw a focus on named territories and perils but with worldwide covers also available where needed and these were priced accordingly. Sandy helped to slow any downward rate movement in retro markets, although forcing some to take higher retentions to maintain rates and conditions.
Interestingly it appears that industry loss warranties (ILW’s) have perhaps been more in favour at these renewals than we saw a year earlier. Willis Re said that significant limits of strategically purchased ILW’s for peak zone aggregate covers and U.S. earthquake covers have been traded in December. This is perhaps due to the better rate conditions encouraging those looking for cover back to the ILW market. Some ILW trades have been delayed though, particularly where they are for windstorm protection or more opportunistic due to collateral being currently trapped by the continued uncertainty over superstorm Sandy losses.
Peter Hearn, Chairman Willis Re commented; “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.”