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Aon Benfield Achieves Flat to Decreasing Pricing on U.S. Reinsurance Programs for Clients

Source: Aon

Posted on 07 Jul 2011

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Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation on Wednesday released its Reinsurance Market Outlook – June &  July 2011 Reinsurance Renewals Update report, which highlights the trends witnessed during both the June 1 and July 1 reinsurance renewals periods. The report reveals that the 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.

However, while the market and other reinsurance intermediaries reported price increases of up to 15 percent in less- or non-affected areas, Aon Benfield achieved rates of flat to -5 percent for its clients. On U.S. programs with co-broking arrangements, reinsurance pricing at renewal was significantly less favorable on average compared to those accounts where Aon Benfield acted as sole broker.

The different outcomes are a result of Aon Benfield's extensive analytical work into catastrophe events and their financial implications, and the strength of its advocacy in the reinsurance markets on behalf of its clients.

Key observations during the June and July renewals periods include:

    •    June 1 catastrophe renewals consisted mainly of Florida and New Zealand programs – the pricing of Florida renewals was flat to -5 percent for Aon Benfield clients, which was directly in-line with the firm's guidance published April 1. New Zealand renewals pricing at June 1 increased more than 100 percent due to the large and still uncertain losses from the series of events in Christchurch.
    •    Florida accounts where clients opted for co-broking services averaged increases of 10 percent. Clients where Aon Benfield served as sole broker averaged decreases of 7.5 percent.  
    •    July 1 catastrophe renewals consisted mainly of national U.S. insurers, Australian insurers and those Japanese insurers that had extended their April 1 programs by three months.  The trends of June 1 continued into July with Aon Benfield achieving pricing of flat to -5 percent for its U.S. insurer clients, which was again directly in line with the firm's guidance published April 1.  Japanese programs renewed with price increases ranging from 30 to 50 percent.  Australian insurers' price increases ranged from 15 to 70 percent.
    •    Included in the results are 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.

Bryon Ehrhart, chairman of Aon Benfield Analytics, said: "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. 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.