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Aon Benfield Report: Q4 Losses Will Not Harden Facultative Market in Early 2011

Posted on 20 Dec 2010

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Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation, today releases the latest edition of its Fac Quarterly report, which analyses the facultative reinsurance market during the fourth quarter of 2010 and forecasts potential trends for 2011.

The Aon Benfield Fac report reveals that just five market losses exceeded USD50million during Q4, compared to the nine experienced in Q4 2009, contributing to a total facultative Q4 cat loss of USD1billion (Q4 2009: USD3.1billion).

For 2010 year to date, approximately USD34billion of facultative cat losses have occurred from 49 incidents of greater than USD50 million, compared to USD28billion from 57 incidents during the whole of 2009.

Despite this increased total facultative cat loss figure, rate reductions have been witnessed throughout 2010 and are forecast to continue into 2011, pointing to an oversupply of fac capacity in the sector.

Elliot Richardson, Chief Executive Officer for Aon Benfield Fac, said: "The facultative reinsurance sector, like the treaty reinsurance sector, has excess capacity, which has resulted in a continued decline in rates during 2010. This scenario means that, absent a series of major losses in the facultative market, our fac clients will find themselves in a strong position for rate negotiations during 2011."

For Q1 2011, Aon Benfield Fac expects property rates will decline by around 6% - compared to a 7% decline in Q1 2010 - with the exception of Latin American catastrophe rates,