Aon Benfield’s most recent evaluation of the state of the reinsurance market, as of April 1, concludes that it performed “as intended through recent events,” and that it continues “to provide stability and accretive capital to insurers.”
While the conclusion that there’s no crisis in the reinsurance industry is certainly reassuring, it has a downside as well. Aon said its report also “reveals that despite a string of meaningful insurance events and associated regional adjustments in pricing, global individual and aggregated losses have been insufficient to stop the continuing decline in U.S. and European property catastrophe rates.”
In fact the report points out that the “April 1 renewals season saw U.S. property catastrophe rates, for programs including hurricane risks, decrease by 5 to 10 percent. Aon Benfield forecasts that the forthcoming June and July renewals period will find price changes of flat to down 5 percent for U.S. hurricane-driven programs – a decrease in the rate of decrease from January and April 2011 renewals.”
There are few European reinsurance program renewals on April 1, but “substantially all Japanese programs were set to renew,” said the report. “However, the Japanese earthquake on March 11 affected the renewals process, as many insurers opted to extend current programs while losses were being assessed. Where Japanese renewals took place, the costs of typhoon programs increased by 5 to 10 percent, and most earthquake programs increased within a range of 25 to 50 percent.”
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.”
In addition the report notes that “reinsurance programs covering New Zealand, where a second major earthquake struck Christchurch in February (following a significant event in September of 2010), do not renew at April 1.
“Back-up covers, for an assortment of local, regional and global reinsurance programs were in process before the event and continue to be placed today. Reinsurance pricing for these back-up covers reflects conservatively on recent experience and is sensitive to the potential of increased insurer retentions.”
Ehrhart added: “Throughout the recent, significant global events, reinsurance responded to the needs of global and regional insurers as intended, with material volatility shifted to reinsurers from the balance sheets and income statements of global and regional insurers. Much greater stability in the regional insurance markets has been achieved as a result of effective reinsurance programs, and affected insurers have gained new or reaffirmed existing respect for the volatility that can accompany frequent chance events.”
Source: Aon Benfield
Topics Catastrophe USA Carriers Reinsurance Market Aon Japan Earthquake
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