Even a major disaster would be unlikely to push up reinsurance prices given the amount of capital currently available to back policies, said Richard Ward, chief executive officer of Lloyd’s of London.
“What is going to change the rate movement? Clearly it’s not going to be a major catastrophe,” Ward said in an interview in Monte Carlo. “We had that in 2011 — the costliest year for the Lloyd’s market. In 2012, we had super-storm Sandy, which was not a small event.”
Reinsurers, brokers and primary carriers, including insurers in the Lloyd’s of London market such as Catlin Group Ltd., are meeting in Monte Carlo this week to begin negotiations for next year’s property and casualty reinsurance policies. Companies including Munich Re, Swiss Re Ltd. and Hannover Re have said they are looking for stable rates for their coverage next year.
Natural catastrophes won’t lead to higher rates, as “there is too much capital out there,” Ward said. “The only thing that’s going to take that capital elsewhere is an improvement in the economy and a rise in interest rates.”
Capital accumulated by the reinsurance industry stood at $510 billion at the end of June, just below a record $515 billion three months earlier, according to Aon Benfield, the reinsurance brokerage of Aon Plc.
“The real issue is going to be the unexpected, such as the Thai floods, which were unmodelled and unexpected, but it wasn’t big enough,” Ward said. “So it would need something that’s pretty significant, unexpected and unmodelled. The upcoming anniversary of 9/11 is one such reminder.”
Reinsurers, which help primary insurers shoulder risks in return for a share of the premiums, pushed through higher prices in 2012 on the back of the record $105 billion of claims for disasters including the earthquake and tsunami that hit Japan and floods in Thailand a year earlier. Catastrophe reinsurance rates fell in seven of the last 10 years, the Guy Carpenter World Property Catastrophe Rate on Line Index shows.
While remaining stable in January and April, there was renewed “downward pressure” at the June and July contract renewals, according to Guy Carpenter, the reinsurance brokerage of Marsh & McLennan Cos.
–Editors: Frank Connelly, Keith Campbell