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Reinsurance Executives: Sandy Causing Selective Rate Firming

Source: BestWire - Meg Green


Posted on 10 Jan 2013 by Neilson

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Reinsurance ratesWhile insurers are still sorting out claims from Hurricane Sandy, the storm has already impacted pricing and the timing of the busy January reinsurance renewal season, executives said.

U.S. property renewals for January were "quite late driven by Sandy losses," said Kean Driscoll, chief executive officer of Validus Reinsurance Ltd. Loss-affected accounts saw rates rise 15% to 35%, where accounts without losses saw rates flat to slightly lower, Driscoll said.

"While Sandy was a significant event, it was more of an earnings event rather than a capital event...not the type of event to cause broad rate changes across all geographies and classes," Driscoll said during a conference call hosted by Bank of America Merrill Lynch.

Rates have improved in property/catastrophe and some casualty lines on U.S. accounts that have been impacted by losses, Brian Boornazian, chairman of Aspen Re, said during a conference call.

"The industry is now not only benefitting from rate improvement post-event, but we are also seeing evidence of selective rate firming, especially in the U.S.," said Boornazian said.

Large peak zone coastal exposures in the United States, where capital constraints are the greatest, achieved the best margins, Boornazian said, according to a transcript.

Sandy has had a positive impact, he said, noting rates improved 10% to 30% on property catastrophe excess-of-loss coverages that had been impacted by the storm.

"Sandy has all but eliminated price reductions on loss-free business and resulted in renewals at low single-digit rate increases," he said.

Some national account buyers switched from occurrence-based coverage to aggregate coverages, which drew in some competition from the insurance-linked securities market, Driscoll said. "But overall, pricing held relatively well," he said.

While about 15% of the total catastrophe market is attributed to ILS, "we characterize 75% of the retro market is collateralized markets right now," Driscoll said.

Sandy has hit the marine industry particularly hard, and is estimated to cost a potential of $3 billion or more, which would make it the largest marine loss ever, Boornazian said.

"Renewals at 1/1 were complicated because of the lack of exact loss data, but achieved rate increases in the 30% range...after years of soft market frustration, the marine business is now likely to generate several interesting opportunities," Boornazian said.

There's still a number of marine deals not completely placed, Driscoll said.

Because Sandy happened so late in the year, there haven't been any radical changes to products sold in the marketplace, but Driscoll said he expects more discussions about products going forward.

"This is a real opportunity for the reinsurance market to step in, innovate and offer more effective products," he said.

In international property business, "the biggest trend we noticed was multi-territory clients moving to a single vertical tower away from buying specific regional covers," Driscoll said. This resulted in lower limits, higher retentions, and ultimately, less premium in the market, he said.

An upward pressure on property catastrophe pricing came from programs impacted by Sandy in the United States and other smaller, local events, reinsurance broker Guy Carpenter said in its 2013 global renewal report.

However, the impact of Sandy was limited to the affected areas, and did not cause widespread rate increases elsewhere in the industry. "Programs not loss impacted were overall flat to down. Price movements for non-catastrophe lines were also mixed, with marine and energy lines seeing noticeable rate increases while many other lines experienced reductions," Guy Carpenter said.

"The Jan. 1, 2013 renewal was very orderly as catastrophes had only local impact," Lara Mowery, global head of property specialty for Guy Carpenter, said in a statement.

Insurance Australia Group Ltd. said it had bought additional reinsurance this year, increasing its program to A$5 billion ($5.25 billion) from A$4.7 billion a year ago. The overall cost of the program was 11% to 13%, as expected, the company said.

While industry natural catastrophe losses for 2012 are estimated to less than half of the $120 billion of 2011, most reinsurers are not facing any material capital impact and remain within their annual catastrophe budgets, Willis Re said in its January 2013 renewal report.

The report, called "Reinsurers Clear the Sandy Hurdle," found international rates for property catastrophe business are flat to down 5%. In the United States, rates for property catastrophe are flat to down 5% on loss-free accounts, and up 10% on loss-impaired accounts.

Validus Reinsurance and Aspen Insurance Holding's operating units currently have Best's Financial Strength Ratings of A (Excellent).

 


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