Aon Re Forecasts ‘Favorable Pricing’ for Mid-year Property Re Renewals

April 16, 2008

Pricing is projected to be favorable for traditional property catastrophe reinsurance programs when insurers seek mid-year renewals, according to an analysis conducted by Aon Re Global, a unit of the Aon Corporation.

“While terms and conditions are expected to continue to improve, Aon Re Global expects price reductions will be a higher priority for cedents,” said the bulletin. “The underlying fundamentals that drove the softening of price and terms and conditions at January 1, 2008 are expected to continue though the June and July renewal season.”

Bryon Ehrhart, president and CEO of Aon Re Services, noted: “Supply continues to grow at a faster rate than that of cedent demand, which implies continued softening.”

Aon Re Global has listed its market expectations for the June 1 and July 1 renewals, as detailed by region. The list is available at s= 63&item= 196.

The bulletin also noted that expectations for P/C reinsurers leading up to the June 1 and July 1 renewals are driven by the following factors:
— Low severity of property catastrophe losses in 2006, 2007 and the first quarter of 2008 — 15 to 20 percent returns on equity in 2007
— Significant reserve releases in 2007 and further reserve releases anticipated in 2008
— Growing capital bases, due in part to lighter share repurchases than anticipated
— Stability or anticipated decreases in key U.S. perils of property catastrophe loss models
— Limited impact on most reinsurers from mortgage security losses and the repricing of credit risk
— Increased interest in assuming property catastrophe and other insurance risks from capital markets investors through insurance- linked securities, industry loss warranty swaps or collateralized reinsurance transactions at prices comparable to projected decreases in traditional reinsurance costs

Aon Re Global estimates that at current pricing levels, and with the capitalization of the P/C reinsurance market, “it would require a ground-up property catastrophe occurrence loss in the range of $30 billion to $50 billion to change the direction of property catastrophe reinsurance rates, terms and conditions.

“A substantial majority of the world’s largest property insurers now utilize risk transfer capacity through sponsorship of catastrophe bond transactions. This alternative facility now represents between 10 and 30 percent of program capacity for insurers buying more than $500 million of coverage for peak reinsurance aggregate zones. Aon Re Global expects this trend to continue through 2008 as even more catastrophe bond funds are raised.

Source: Aon Re Global –

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