Reinsurance Rate Increases Moderating at July 1

PropertyCasualty360.com – July 10, 2012

Reinsurance renewals continue to firm, but ample capacity is offsetting some pricing pressures produced by past catastrophe activity and catastrophe-model changes, says reinsurance broker Guy Carpenter.

“In 2011 the industry experienced one of its most challenging years, due to the tremendous volume of catastrophe losses across the globe,” says Lara Mowery, Guy Carpenter’s head of global property specialty, in a statement. “With light losses to date in 2012, July 1 property renewals are marked by disciplined underwriting amid plentiful capacity. Based on the impact of July increases in 2011 and available capacity, pricing trends have moderated.”

In a 22-page report titled “Strong Risk Assessment Focus Amid Plentiful Capital During 2012 Renewals,” Guy Carpenter, a subsidiary of Marsh & McLennan Companies, notes that losses for the first quarter of 2012 were at $11 billion, a tidal drop from the $76 billion loss experienced by the reinsurance industry worldwide at the same time last year.

Furthermore, the capital position in the broker’s global reinsurance composite for Q1 2012 increased 4 percent to $184.5 billion from year end 2011, the result of continued reserve releases and falling yields on high-grade fixed-income securities. Guy Carpenter predicts these favorable trends to continue into January of next year.

Property pricing in the U.S. rose by more than 6 percent so far in 2012 compared to 2011, as reinsurers reacted to the release of new model RMS version 11 and last year’s cat losses.

But the report notes that pricing trends have moderated throughout this year. Overall, Guy Carpenter says, it is more difficult than ever to generalize with respect to pricing in the property-catastrophe market. Significant pricing adjustments, both up and down, still exist depending on a line’s individual circumstances.

David Flandro, Guy Carpenter’s global head of business intelligence, observes, “Catastrophe losses have been relatively limited for the reinsurance sector to date in 2012. As a result, we have seen a continued improvement in the sector’s dedicated capital position, which has mitigated price increases. As we enter hurricane season, we will continue to track catastrophe activity, reserving and asset-side issues in our analysis of pricing trends for the remainder of the year.”

For other reinsurance business, United States casualty lines showed rate increases as of July.

Worker’s compensation showed “the most evident rate hardening,” while general liability rates hardened slightly.

Catastrophe bond issuance remained vigorous. Fifteen Guy Carpenter transactions came to market in the first quarter of 2012, totaling $3.4 billion. Risk principal outstanding for the first half of 2012 was at $13.5 billion, a whopping 113 percent increase from the prior year, and almost as high as the issuance surge post-Katrina, Rita and Wilma, which topped a record $14 billion.

As this article points out Worker’s compensation showed “the most evident rate hardening,”  in July while general liability rates hardened slightly.  Workers Comp Recovery helps brokers maintain clients and win new workers compensation business.