In November, as reinsurers were busy giving quotes to clients in the annual pursuit of January renewals, companies said they were seeing stable premium rates, terms and conditions -- unless the ceded portfolio had experienced some losses.
"Generally, we are seeing that the market is flat in terms of rates, except where loss experience warrants it, then we are seeing rate increases, whether it is property or casualty," said Pina Albo, president of Munich Re America's reinsurance operations. "Reinsurers are really holding the line and showing discipline in their rating because the price is warranted."
She said any line with "financial institution" in the name -- say financial institution directors and officers or financial institution errors and omissions -- were also seeing moderate rate increases.
James Few, managing director Aspen Re and chief underwriting officer at Aspen Bermuda, said generally the company also expects to see a disciplined renewal season. "We expect that common sense will prevail. The market is likely to experience some pressure on peak zone rates but overall remains stable," he said.
Due to the recession, businesses are buying less commercial insurance. With fewer employees to insure, workers' compensation premiums are down. "That is not so good from a supply-and-demand point of view," Few said.
And in economic downturns, companies may cut back spending on risk management, which can lead to an increase in losses, Few said. "But that is more likely to be a problem for primary writers," he said.
Chris Klein, head of business intelligence for reinsurance broker Guy Carpenter, said he expected the January renewal season to run relatively late this year, with deals not closing until closer to January.
"We are expecting rates to be flat to down, with the exception of where there are severe localized losses," Klein said.
Reinsurers' bottom lines have been strengthened by the improvement of the financial markets, Klein said. "The key factor has been the recovery of asset values. The stock market reached its low point in March, and we've seen a phenomenal increase since then. We have seen companies recovering by basically doing nothing. And we have not had any substantial catastrophe losses [that could] cause market-changing amounts of damage," Klein said.
Stormy Days
While reinsurers are typically thought of as helping primary writers pass on risk from major catastrophes, such as hurricanes and earthquakes, primary companies are looking to reinsurers to help protect their balance sheets against the frequency of smaller losses, such as tornados, thunderstorms and winter storms, Albo said.
Over the past 30 years, insured losses from thunderstorms (including tornadoes and hail) have more than tripled, with 2008 and 2009 having the largest losses on record. According to a 2009 A.M. Best study, 2008 was not only the worst year for catastrophe losses from tornadoes and related weather events, but it also was the second-worst year for the number of tornadoes. The catastrophe losses from tornadoes and related events in 2008, as reported by ISO/PCS, totaled $10.5 billion from 29 events.
Albo said in addition to getting more quota-share requests -- where a primary writer asks the reinsurer to take a portion of risk from its entire book -- Munich Re America is also seeing a lot of interest in its natural catastrophe frequency cover, which complements traditional excess-of-loss reinsurance by protecting primary writers from an accumulation of losses from frequent, local storms.
The Specter of Inflation
Reinsurers are also mindful of the threat of inflation.
"We believe inflation is an issue, particularly for casualty underwriters," Klein of Guy Carpenter said. "We've been worried about this issue for several months now."
Albo said inflation will not go up until the unemployment rate improves. "Once that kicks in, it will trigger an inflationary environment that will impact long-tail lines," she said.
Few said, "Inflation itself is not a bad thing, it's a normal part of life. We price our business making assumptions for future claims costs. The difficulty is estimating the level of inflation accurately. Pricing today for claims tomorrow is complex and has become more so, with the unprecedented level of economic intervention by governments around the world."