Reinsurance Prices Flat Except in Catastrophe Regions: Aon

First quarter catastrophes didn’t halt decreases in most U.S. reinsurance renewal programs, except in regions hard hit by significant catastrophe events, according to a report by a leading reinsurance intermediary. However, reinsurance renewals for the rest of the year may be more price sensitive thanks to losses in 2011 so far.

The report, Reinsurance Market Outlook – June & July 2011 Reinsurance Renewals Update, published by Aon Benfield, highlights the trends in both the June 1 and July 1 reinsurance renewals periods.

Reinsurance renewals brought meaningful rate changes to regions affected by the significant catastrophe events of the first quarter, including the March 11 earthquake and tsunami in Japan, and the February 22 earthquake and aftershocks in New Zealand, according to the report. However, while the market and other reinsurance intermediaries reported price increases of up to 15 percent in less- or non-affected areas, Aon Benfield reported rates of flat to -5 percent for its clients.

The report also revealed:

The Aon Benefield report also noted certain anomalies. For example, reinsurers were not willing to reward insurers that cut exposure in key catastrophe zones with rate decreases that matched the pace of the decreasing exposures. Reinsurers, however, were willing to increase pricing at a rate lower than the pace of growing catastrophe exposures for insurers that wrote more business. These anomalies were more noticeable in programs requiring significant capacity.

According to Bryon Ehrhart, chairman of Aon Benfield Analytics, there was real debate in the approach to the June and July renewals periods about whether western European and U.S. insurers should pay more for their catastrophe capacity due to the significant loss activity seen in countries such as New Zealand, Australia and Japan. “Based on our extensive analytical work, and the work we have undertaken on the ground in affected regions to achieve the most comprehensive perspective on the losses, we believed that these insurers should not pay more, and we were the sole voice advocating this position on behalf of our clients,” Ehrhart said. “By focusing on the facts, the capital position of the reinsurance industry, and not the emotion stirred in the market, we were able to navigate through a turbulent period and achieve differentiating client results.”

Aon Benfield forecasts that pricing of U.S. property catastrophe renewals for the remainder of the year will be flat, assuming no additional occurrences of substantial insured and reinsured catastrophe losses.

The firm notes that the reinsurance market for renewals for the remainder of the year will be more sensitive to additional losses than last year given reinsured loss experience in 2011 to date.