Aon Benfield: Record Q1 Losses Expected to Drive Facultative Reinsurance Rates During 2011

Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation, today releases the latest edition of its Fac Quarterly report, which provides an analysis of trends witnessed in the facultative reinsurance market during the first quarter of 2011. The report, compiled by Aon Benfield Fac, the firm’s facultative reinsurance division, reveals that Q1 2011 was the worst quarter ever for the facultative reinsurance market in terms of loss experience.
 
Notable Q1 events included natural hazards such as the Australian floods, Cyclone Yasi, and the New Zealand and Japanese earthquakes, and man-made losses such as the Gryphon vessel and Glory satellite.
 
The report highlights that ten large market losses exceeded USD50 million during the quarter, compared with 13 during the 2010 period. However, despite this lower frequency, individual events were markedly more costly to reinsurers.
 
This high level of loss activity has reversed the trend towards facultative rate reductions seen during 2010, leading to the potential of increased pricing in the most impacted territories during 2011.
 
Total re/insured losses are expected to breach USD52.6bn for Q1 2011, compared with a total loss experience of USD40.6bn for the whole of 2010.
 
Elliot Richardson, Chief Executive Officer of Aon Benfield Fac, said: “The first quarter of the year saw a series of unprecedented global losses to the insurance and reinsurance markets, and our teams have been doing their utmost to ensure that the claims process is operating efficiently so that relief efforts in these territories can continue apace. We expect that rate rises will now be seen in affected territories as well as other catastrophe exposed areas. However, it is still too early to correctly state the amount. Early signs are that US property cat rates are hardening, which is an indicator that it will not be contained to affected areas only. The same is also being seen in the onshore energy and power sectors.”
 
Stuart Beatty, Executive Managing Director of Aon Benfield Fac APAC, added: “There are many factors that will conspire to drive facultative rates during 2011, not least the heavy loss experience in the first quarter. Rates will be further impacted by the latest model release from catastrophe modeller RMS, the increased combined ratios that reinsurers have reported for 2010, and the effect of continued low investment returns on industry financial results. Despite this potentially more challenging environment, Aon Benfield Fac has the global resources to ensure that our clients can overcome all their business challenges.”