Rates Rising on U.S. Property Catastrophe Reinsurance

A new industry briefing shows reinsurance rates continuing to increase for the U.S. property-catastrophe reinsurance market for April 1, 2009, renewals.

According to Guy Carpenter & Co.’s “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal” briefing, national programs rose between 10 percent and 14 percent on a risk-adjusted basis, with the Northeast seeing 6 percent to 8 percent increases. Risk-adjusted pricing was up 12 percent to 14 percent on average for residual markets, though results varied widely, depending on risk pool characteristics.

By comparison, reinsurance rates increased 11 percent on average at the Jan. 1, 2009, renewal.

“The rise in reinsurance rates at the April 1 renewal extends the upward trend that we saw at the beginning of the year,” said Lara Mowery, head of Guy Carpenter’s Global Property Specialty Practice.

Renewal quoting behavior varied widely among underwriters, ranging from negative 15 percent to 15 percent for certain programs. Capacity needs, regions and specific perils were among the factors influencing the final rates that insurers were able to secure.

The briefing also said that pricing trends were substantially impacted by the availability of capacity – especially for perils in historically capacity constrained zones – as well as program-specific loss histories.

The Guy Carpeneter briefing also claims that capital is likely to continue to be constrained in 2009, with uncertainty in the financial markets likely to impair investment assets.

“Capital has undoubtedly been constrained, and this is translating into decreasing capacity in a number of areas, which then has an impact on reinsurance pricing,” Mowery said. The ability to secure additional capital will depend on specific companies and lines of business, the briefing said.

As a result of concern about continued price increases, a number of Florida renewals are already underway. The outcome of the current Florida legislative session and the decisions by the Florida Hurricane Catastrophe Fund Trustees could have a profound impact on the market.

“Taking early action continues to be critical in helping insurers manage their cost of coverage,” Mowery added. “As we move into the Florida renewal season, the many unknowns make this strategy more difficult for these companies.”

The briefing, titled “Rates Up on Tightening Capacity at U.S. 4/1 Prop-Cat Renewal,” is available for download at www.GCCapitalIdeas.com.

Topics Florida Trends Catastrophe USA Pricing Trends Reinsurance Property