Rates in 2002 for reinsurance covering the property catastrophe risks of insurance companies increased in all regions for virtually all insurance companies, according to a new report by Guy Carpenter & Co., Inc. The rate increases in 2002 represent a third consecutive year of rate hikes, which followed six years of soft pricing.
The Guy Carpenter study, The World Catastrophe Reinsurance Market: 2002, analyzes the catastrophe property reinsurance markets in 11 countries and five regions, which together account for more than 90 percent of the global market for catastrophe reinsurance. It summarizes the catastrophe exposures and current market conditions for catastrophe reinsurance for each of these markets, as well as the availability of insurance from private sector and government sources to cover losses.
“The events of September 11, 2001, turned a firming catastrophe property reinsurance market into a classic hard market, with substantial price increases and significant capacity shortages,” Salvatore Zaffino, Chairman and CEO of Guy Carpenter, said. “However, there were other factors contributing to actual and potential losses for the reinsurance market, including corporate scandals resulting in significant liability losses, falling equity and bond prices translating into poor investment earnings and a new wave of asbestos claims, adding pressure on the marketplace.”
The report also examines factors influencing whether catastrophe property reinsurance prices will rise again or if the end of the hard market is on the horizon. “At this point, industry opinions are divided,” Zaffino said. “There are signs of the beginnings of a softer market, such as increased capital flowing into the industry, indications of price weakness at July 1 renewals, and the relatively low catastrophic loss experience so far this year. But there are a number of troublesome issues as well, suggesting that the market may continue to harden through the next renewal season that starts in January 2003.”
On terror risk, the Guy Carpenter report provides a country-by-country synopsis of primary insurance and reinsurance initiatives. In all, a total of 24 countries, representing North America, Europe, Africa, Asia/Pacific and Latin America, are included in the study.
“It is not a force of nature that weighs most heavily on the market this year, but a man-made force—terrorism,” Zaffino added. “While there will be some rough waters ahead, the insurance and reinsurance industry can be proud of its record over the past year in handling the largest insured catastrophe loss in world history.”