Another quiet hurricane season, some near misses with catastrophes worldwide, and continued softening in pricing, terms and conditions have contributed to another good renewal season for reinsurance buyers—bringing prices down about 9 percent worldwide and even lower in the United States, industry observers report.
“In the U.S., national programs are down 10 percent, U.S. regional programs are down 12 percent, and that reflected the greater capacity available in the marketplace for smaller programs,” said Chris Klein, managing director and global head of business intelligence with Guy Carpenter in London.
“The other thing we observed on U.S. renewals was that while rates were down across all layers on programs, the decreases were more pronounced on the lower layers, where premiums tend to be larger, and for which there was therefore more competition,” he added.
Mr. Klein said the biggest catastrophe in 2007 in terms of insured losses was windstorm Kyril, which hit Northern Europe and caused losses up to $8 billion.
However, in the United Kingdom, he noted, due to higher reinsurance attachment points, “insurers’ insurance programs didn’t tend to attach, so we had surplus capacity last year because of an absence of losses hitting reinsurance programs—not because of an absence of losses.”
He said that Guy Carpenter’s recently released report—”Near Misses, Plentiful Reminders”—was aptly named because of the number of major events last year that didn’t impact reinsurance programs as seriously as might have been expected. Among them were:
• At least four earthquakes higher than seven on the Richter scale.
• Two Category 5 hurricanes that made landfall (which he called “without precedent”).
• A near miss with an earthquake in Japan.
• Storms in Europe and Australia.
• Wildfires in California, Canada and Greece.
Reinsurers and insurers, noted Mr. Klein, have had two years of good profits, which has created a squeeze from both sides.
“You’ve got reinsurance buyers who want reductions because they haven’t had any losses, so they feel that they should be getting a discount,” he said. “And because the losses have not been hitting the reinsurers, they have been making profits, which are swelling their balance sheets, increasing their capitalization.”
Mr. Klein observed that since “capital is the raw material of the reinsurance industry” and “supply exceeds demand, prices are being squeezed—and insurers have been having good results as well.”
He said overall, primary insurers had a very good reinsurance renewal season, reporting a combination of lower rates along with better terms and conditions. Price was their main concern, but as for their ability to tap capacity, he cited “no real problems.”