With adequate capacity, low catastrophe loss levels and reinsurance buyers feeling the budget pinch, one might think reinsurers would have plenty to worry about. The biggest reinsurers are expressing cautious optimism for the near future, but just as likely they are keeping an eye on the volatile nature of everything financial in these times.
Equity analysts at Bernstein Research said in a market note that it appears Jan. 1 reinsurance premiums rates fell an average of 2%, better than the 5% drop Bernstein was expecting. The firm said demand from European primary insurers appears to be stronger than anticipated, "which may have to do with the ongoing competitive pressure on their primary business."
But the analysts at Bernstein say the market is still softening, and they expect more rate decreases in April and June renewals, which are more driven by non-proportional and catastrophe covers -- the lines that saw the greatest pricing pressure in January.
The Reinsurers' Take
Among the major reinsurers that have now commented on Jan. 1 renewals, Munich Re reported downward pressure on rates due to ample capacity and pressure on buyers following the financial crisis. Munich Re renewed 85.4% of the volume that came up for renewal, worth about 6.8 billion euros. Prices on the renewed business were down 0.3% on average.
Munich Re said it cut its capacity in areas "where there is currently little prospect of profitable results," including motor business in Eastern Europe, China and Germany; and in credit reinsurance and selected U.S. liability segments.
Hannover Re said its Jan. 1 experience encouraged it to forecast for a 3.5% rise in 2010 gross premiums overall. Of the 2.97 billion euros in premiums that came up for renewal in January, 2.7 billion euros worth was renewed. With increases of 394 million euros from new or modified treaties due to improved pricing, the premium total for January was 3.1 billion euros.
The reinsurer saw some deterioration in property lines, but promising developments in aviation, credit and surety and German motor liability [The latter somewhat of a surprise for the reinsurer].
Munich Re reported rate increases in segments hit by claims in 2009, including credit, aviation and some natural catastrophe covers.
For both Hannover Re and Munich Re, Jan. 1 renewals represent about two/thirds of total reinsurance premiums.
According to Munich Re, the market for January renewals was more difficult than a year earlier. "There is sufficient capacity available in most lines of business," the reinsurer said. "Generally, prices showed a slight downward trend, another important reason being the stagnation in demand for insurance and reinsurance cover as a consequence of the difficult economic environment."
The Jan. 1 renewals picture will continue to clarify Feb. 10, when French reinsurer Scor is set to comment on its experience.
Reinsurers say they are cautiously optimistic for 2010 so far, but the fingers must be crossed. If capital markets turn sour, the promising investment results of the past year may be gone. Low claims costs in property lines can put further pressure on pricing. And primary insurers may turn up the heat in negotiations of their own capital position is favorable.
The bargains will only become harder to achieve.